May 27, 2015

This Run-Up Has Been Historically Exceptional

A report from McClatchy DC. “Two new measures released Tuesday show home prices continued their upward climb earlier this year, even as sales remain lukewarm. U.S. house prices rose 1.3 percent from January through March, according to the Federal Housing Finance Agency House Price Index. It marked the 15th straight quarter in which prices rose on the index, compiled from information about mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.”

“‘Home prices are now, on average, roughly 20 percent above where they were three years ago,’ said Andrew Leventis, the principal economist for FHFA. ‘This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of inflation observed during that same period.’”

“Translation: People aren’t earning much more, yet home prices are rising faster than the rate of inflation in much of the country. San Francisco and Denver saw the biggest jump in home prices on the Case-Shiller index, jumping by 10.3 percent and 10 percent respectively. Dallas prices rose 9.3 percent over March 2014. A McClatchy article earlier this month raised concerns that some parts of the nation might be seeing housing bubbles, a concern both recognized and dismissed by David Blitzer, chairman of the Index Committee for S&P Dow Jones Indices.”

“‘The only way you can be sure of a bubble is looking back after it’s over. The average 12 month rise in inflation adjusted home prices since 1975 is about 1.0 percent per year compared to the current 4.1 percent pace, arguing for a bubble,’ he acknowledged in Tuesday’s report. ‘Home prices are currently rising more quickly than either per capita personal income (3.1 percent) or wages (2.2 percent), narrowing the pool of future home-buyers. All of this suggests that some future moderation in home prices gains is likely.’”

The Wall Street Journal. “The S&P/Case-Shiller Home Price Index released on Tuesday was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another bubble forming? ‘There is no bubble to be anxious about,’ said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. Price growth in most markets is ‘a lot softer’ than it was a year ago, he noted.”

“To be sure, some markets, such as San Francisco and Denver have seen staggering gains. Denver has surpassed its peak home prices in 2006 by nearly 17%. Lawrence Yun, chief economist for the National Association of Realtors, has been among the loudest sounding the alarm that prices are too high. But he said that he isn’t worried about a bubble, just that the lack of affordability may cause demand to evaporate. ‘In a sense it is demoralizing for people who want to save up for a down payment,’ he said.”

“Another concern is a possible jump in interest rates. John Burns, chief executive of John Burns Real Estate Consulting Inc., said that would put homes out-of-reach for many at current price levels in many major cities. If rates rose to 6%, homes in more than half of those markets, including Los Angeles, San Francisco, Miami, and Denver, would be overvalued. ‘We are in a pretty precarious environment,’ Mr. Burns said.”

“Economists also aren’t concerned about a price bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply.”

From Bloomberg “Purchases of new homes in the U.S. rose more than projected in April, a sign this part of the market is picking up steam during the busiest selling period of the year. Housing starts soared in April to a 1.14 million annualized rate, the most since November 2007, Commerce Department figures showed last week. More permits, a proxy for future construction, were issued than at any time since June 2008.”

“The median sales price increased 8.3 percent from April 2014 to $297,300, the report showed. Purchases rose in two of four U.S. regions, led by a 36.8 percent surge in the Midwest, the biggest jump since October 2012. Buyers are getting help from low borrowing costs during the housing market’s busiest time of the year. The average 30-year, fixed-rate mortgage fell to 3.84 percent in the week ended May 21, close to the level at the start of 2015 and well below last year’s high of 4.53 percent in early January 2014.”

The Press Enterprise in California. “Home sales picked up in April as builders sold 517,000 new single-family houses across America at a pace that is up 26 percent from April 2014, according to a new Census Bureau report. Builders in the West bested that home building rate with a 39.8 percent year-over-year gain. The report released Tuesday, May 26, 2015, put new single-family home sales at a seasonally adjusted annual rate of 130,000 in the West, nearly one-fourth of all homes sold in April. It was the fifth consecutive month showing sales of 130,000 or more.”

“At some point, said Dennis Handler, director of Metrostudy’s Southern California region, new home sales will rise. He’s pinning it on the moment resale home inventory wanes and a fresh supply of new homes come into the Inland market at the lower end of the price spectrum. Still, the Metrostudy report noted a $135,000 difference between new and resale median prices of Inland homes, with less than 30 percent of Inland homebuyers currently able to afford a new home. The median sales price of new houses sold in April in the U.S. was $297,300; the average sales price was $341,500. In the Inland area, Handler said most new home starts, 37 percent, were in the $300,000 to $400,000 price segments. Twenty-eight percent were $400,000 to $500,000 range.”

The Bay State Banner in Massachusetts. “Jill Edwards likes her three-bedroom apartment on Munroe Street well enough. But with real estate prices inching up in the Roxbury neighborhood she’s called home most of her life, she’s looking for something more permanent. She was among dozens of prospective buyers perusing condominiums in Roxbury and Dorchester, looking for the right mix of affordability and space. Priced at $293,500, the condo is one of several listed in Roxbury priced below $300,000. ‘I want to get in the market before it gets crazy,’ she says.”

WIVB in New York. “It is an eyesore in this neighborhood of well-maintained Colonial-style homes. The two-story house on Goundry Street in North Tonawanda has been vacant for years, and the owner, Donna Neal has even tried give it back to the bank for a dollar. ‘Hasn’t been my house, I haven’t lived in it. I haven’t wanted it, tried to give it to them,’ said Neal.”

“The owner can’t give the property away because the bank says more is owed on the mortgage–than the property is worth. Neighbors, like Stan Fularz are getting frustrated because the house is like a sore thumb. Fularz offered to buy the house, but Donna says the bank would not allow it, since Stan’s offer wasn’t enough to pay off the mortgage. ‘Yes, I wanted to tear it down, open up the yard, double the size of my lot.’”

“In the meantime, the bank is paying the taxes, the insurance, sewer and water, and the upkeep of the property, which is puzzling to Fularz who suspects the house is costing the bank–and the Federal Housing Administration which guaranteed the loan–more than the loss if they had accepted his original offer.”

“Donna has also learned there are liens on the property that have to be paid before the deed can change hands, and seems to be how Goundry St. ends up with this zombie property: Stan can’t buy it, Donna can’t give it away, and the bank won’t take the title. ‘They put a new roof on it. They cleaned out the backyard, and emptied out the house,’ Donna Neal asks herself, ‘who’s decision is it for the bank to keep losing money by the day? Bank statements indicated more than $50,000 is owed on a mortgage that started out at about $40,000. Shouldn’t the bank be looking to cut its losses?’”

Bits Bucket for May 27, 2015

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