Why Housing Prices Are Nearing Bottom

“Overall, the shape of the U.S. housing market is not nearly as bad as some analysts would have you believe,” according to Motley Fool contributor Marko Djuranovic. “This, in turn, means that the entire home building industry is worth a closer look.” Djuranovic disputes a recent BusinessWeek finding that today’s homes are overvalued based on a series of home values going as far back as 1890 and showing that prices have historically risen annually from 0.2% to 0.8% above inflation. First, he says, “today’s homes are not the same homes that were built three decades ago,” with the median size increasing 47% from 1,525 square feet in 1973 to 2,248 square feet in 2006. Second, “today’s homes feature sturdier construction materials, more expensive siding, outdoor additions like in-ground pools, more complex wiring to support an increasing number of electronic devices, sophisticated heating and cooling systems and larger kitchens (which translate to increased carpentry.) Simply, these are better homes — and ‘better’ means more expensive to build.” Third, relative construction costs are higher than they used to be. “Taking these factors into account implies that housing prices should have grown at least 2% above inflation in the past 30 years, putting the current median home price about where it should be,” he writes. “Once the financial institutions rediscover how to effectively assess default risk in borrowers, the supply of existing homes will be reduced fairly quickly. And the moment that the supply of existing homes begins to shrink, potential first-time home buyers will wake up to the fact that between low interest rates and homes that sell at (or below) replacement cost, they can grab the deal of a lifetime.” (www.fool.com)
The Motley Fool (2/25/08); Marko Djuranovic

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Bargain Prices This Spring May Buoy the U.S. Housing Market

The distressed U.S. housing market should get a lift this spring as bargain prices lure prospective buyers out of hibernation, but tighter lending standards will be an obstacle for all but the most credit-worthy borrowers. Even in Arizona and Florida, among the hardest-hit states, a few rays of light are starting to shine through. Signed contracts that have yet to close were more numerous in January than in any of the previous six months, according to Floyd Scott, president of Century 21 Arizona Foothills in Phoenix, though they remained 30% below a year earlier. “We’ve seen quite a bit of increase in traffic,” he said. “A lot of people are shopping for deals right now.” According to Russell Shaw, in his 30th year with John Hall & Associates, a real estate business in Phoenix, “this is the best buyer’s market that has existed in a decade, maybe longer. There are tons of inventory, great interest rates and the prices are back in line to where houses are decently priced again. If people have a good track record of paying their bills, the loans are there.” In Boston, a sense of urgency is also returning to the market, said John Murray of Realty Executives Prestige Properties. A buyer he represents was the winning bidder at the listed selling price for a condo in the upscale neighborhood of Back Bay. At least three competing bids surfaced. Until recently, the vast majority of would-be sellers have had to reduce their asking prices to lure buyers. (www.iht.com)
lnternational Herald Tribune (2/25/08); Lynn Adler, Reuters

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Best Cities for Bargain Housing: Salt Lake, Raleigh

Prospective buyers looking to take advantage of local housing slumps should consider markets where job growth is strong, foreclosures are relatively low and inventory is high. Good places to look include Salt Lake City; Raleigh, N.C.; Orlando; Charlotte, N.C.; and Jacksonville, Fla. — where the damage from risky lending isn’t as drastic as in other parts of the country, and where employment growth suggests inventory can burn off at a healthy rate. “These markets “are where you have high inventories but pliable borrowers, with lenders willing to deal,” says Anthony Sanders, a professor of finance at Arizona State University. That is what is happening in Houston, where real estate has always been a bargain, which is one of the reasons the population has expanded so much since 2000. Jobs are being added at the sixth fastest rate of any city in the country, and while there have been a few foreclosures, it hasn’t taken a hit. Based on inventory levels and construction projects in the works, buyers still have good standing to negotiate price. (www.usatoday.com)
USA Today (2/25/08); Matt Woolsey, Forbes

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The Eleventh-Hour Upgrade

Some experts warn that home sellers are unlikely to get their money back from extensive renovations, but owners often feel they have no choice if they want to sell, especially when builders of newly constructed homes are throwing in hardwood floors, finished basements and other free upgrades. “There’s so much competition, you need to stand out,” says Brian Goe, a waterproofing company owner. He spent $28,000 to upgrade a house in Bedminster, N.J. that he bought in 1987 for $187,000. Before it hit the market a couple of weeks ago, he had contractors add pickled oak flooring to the dining room and new carpet. They installed skylights in the living room, new stainless-steel kitchen appliances and separate sinks in the master bath and painted the interior walls in faux finishes. An online poll of 445 contractors conducted recently for the Wall Street Journal by ServiceMagic, a national contractor-referral service, indicated that last-minute renovating is propping up a sizable chunk of the remodeling industry. According to the poll, 26% of contractors said they had been contacted in the past year by prospective home sellers looking to do substantial work. Of those contractors, 48% said such work had boosted their business by 20% or more. (www.startribune.com)
Minneapolis-St. Paul Star Tribune (2/25/08); June Fletcher, Wall Street Journal

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Earth Movers: Pitching Boomers Housing That is Green as Their Hair Goes Gray

Housing developments that target baby boomers may be the next big push for the green housing market and statistics indicate this could be a good marriage. “There is no doubt that the green trend is going to accelerate more and more,” said Rick Andreen, president of Shea Homes’ Active Lifestyle Communities division. This month, Shea announced the opening of Victoria Gardens, an “active lifestyle,” or retirement, development in Florida sandwiched between Orlando and Daytona Beach. The homes were advertised as having a carbon footprint that is 20% to 30% less than that of a “typical household.” Victoria Gardens marks Shea’s debut in the Florida retirement market, though the company is building similar homes in northern and southern California, Arizona and Washington. Solar attic fans, green-fiber recycled insulation, motion-sensor triggered lighting, energy-efficient windows and appliances and garages outfitted with electric-vehicle changing stations are considered standard in these homes. Baby boomers, born between 1946 and 1964, grew up alongside the environmental movement of the 1960s and ’70s. “These guys were at Woodstock,” said Matthew Kahn, a professor at UCLA’s Institute of the Environment. “This is the birth cohort that was at the environmental movement’s summer of love.” (www.marketwatch.com)
MarketWatch (2/24/08); Stephanie I. Cohen

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After Housing Bust, Hard Times in Arizona

The state of Arizona and all its cities and towns are confronting huge revenue shortages this year, mainly because sales-tax revenues are far below projected levels. Along with California, Nevada and Florida, the state is leading the country in the current economic slide. “These four states are where the housing bubble was the biggest, where investors and speculators had a significant presence,” says Marshall Vest, an economist at the University of Arizona’s Eller College of Management in Tucson. “Those states saw a higher use of subprime mortgages. These are the states that have been in recession for several months already.” Arizona is a little different from other states in that property tax isn’t the main source of revenue for state and city governments. They rely more on sales and income taxes. So when earnings and spending are curtailed, so are the monies that local governments collect. “For the past decade, there’s been a much stronger connection between housing values and consumer spending than was previously thought,” says Chris Hoene, director of policy and research at the National League of Cities. He says that’s because people used the values of their homes for second mortgages to make other large purchases. And those large purchases — usually cars, appliances and assorted luxury items — led to the collection of more sales taxes. When those purchases fell off, so did the sales-tax collections. (www.csmonitor.com)
Christian Science Monitor (2/25/08); Faye Bowers

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