Most Housing Indexes Overstate Downturn

Most closely watched U.S. home price measures lack enough local data to truly reflect house values and are overstating the extent of price drops, executives at a real estate analytics firm said. Some key markets in those indexes are dominated by distressed foreclosure sales, exaggerating the price weakness that is often extrapolated to the national market, the co-founders of Collateral Intelligence said on a conference call conducted by UBS. Closely watched indexes cited by the firm’s co-founders — Michael Sklarz and Norm Miller — include those provided by Standard & Poor’s/Case-Shiller, the Federal Housing Finance Agency (formerly the Office of Federal Housing Enterprise Oversight, or OFHEO) and the National Association of Realtors®. “To properly track the real estate market you really need to get down to all the local markets,” said Sklarz, the Honolulu-based president of Collateral Analytics. “Now we have the tools to properly track that. So why track these overly simplistic indicators that can be very biased, as they are in the current environment, when there’s so many more complicated things going on in the market?” While Case-Shiller regional indexes show a 26% slide in prices since the peak in mid-2006 and its national index shows a more than 18% drop in the fourth quarter from a year earlier, Miller said a more realistic estimated cyclical drop is in the 12% to 15% range for the typical home owner. “What we find is that on the way down, Case-Shiller overestimates the decline by about 10 percentage points or so, and on the way up will do the same thing,” said Miller, who is a professor at the University of San Diego’s Burnham-Moores Center for Real Estate. (www.calgaryherald.com)
Calgary Herald (3/30/09); Lynn Adler, Reuters

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With Cash in Hand, Home Investors Reemerge in Las Vegas

With lending guidelines tightened, especially for investors looking to purchase homes at bargain prices, cash buyers have increased dramatically in Las Vegas. Windermere Prestige Properties reports that cash purchases accounted for 27% of closings in February and that the use of cash has increased 10% over the past six months. Investors have been looking to gobble up foreclosure properties and rent them out with the expectation that monthly rents will pay for their mortgages. Whenever the housing market improves and prices appreciate, some of these investors will sell the homes. Steve Bottfeld, executive vice president of Marketing Solutions, says the increased use of cash means many banks aren’t lending money, which is a crucial component of any housing market recovery. It also speaks not only of the investors in the market, but the second-home buyers looking at Las Vegas as well. “They are looking at it as a good play,” Bottfeld says. “It gives you hope for the future, seeing people pump cash into real estate instead of leveraging it. It means they have great belief in the future of the market. That is a positive sign.” Robyn Yates, a broker-owner of Windemere, says she’s seen a lot more investors purchasing properties. The investments are paying for themselves, she adds. A one-bedroom condominium in Green Valley can be purchased for $50,000. The mortgage and insurance come to about $650 a month, and it can be rented for $850 — a 15% return on investment, she says. (www.lasvegassun.com)
Las Vegas Sun (3/27/09); Brian Wargo

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Signs of Life in California Real Estate

There are signs that California’s housing market may be coming out of its tailspin. Sales volume is increasing, investors are returning and inventory is shrinking. Low prices have brought out droves of buyers. In February, they purchased more than 600,000 homes, some 80% more than they bought in February 2007, according to the California Association of Realtors® (CAR). And most of this activity is where prices are off 40% to 60% from their peaks. In the Sun City area of Riverside County, for example, prices have fallen more than 35% over the past 12 months. Two-thirds of February’s sales in the area were of foreclosed properties owned by banks, according to Chuck Whitehead, a broker with Coldwell Banker Associated Brokers. “The sales rebound is largely centered around areas that have experienced the biggest impact from the subprime crisis,” said CAR Chief Economist Leslie Appleton-Young. In more stable communities, where fewer homes were saddled with toxic mortgages, prices have not crashed as badly and sales are rebounding more slowly. But foreclosures still account for a significant portion of sales, according to Phil Jones, a broker with Coldwell Banker Coastal Alliance in Long Beach. Most analysts foresee continued price declines in California, according to Nicholas Retsinas, director of Harvard’s Joint Center for Housing Studies. “But [there’ll be] a slowing of that decline, which portends the end of price drops.” (www.cnnmoney.com)
CNNMoney.com (4/3/09); Les Christie

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Home Builders Told ‘No!’ to Relaxed Home Designs

Home builders in Arizona hoping to save a few bucks by seeking more relaxed design requirements from cities and towns have been resoundingly turned down, with some of the opposition strongest in Gilbert and Queen Creek. The Home Builders Association of Central Arizona asked towns and cities in the valley late last year to water down rules governing the use of some pricey architectural aesthetics and building materials, said Kendall Baxley, who until recently was the group’s senior deputy director of municipal affairs. Making smaller windows and switching from stone effects to cheaper materials are a couple of examples of what would save builders a lot of money over the long haul, he said. The request is the main component of a handful of concessions the group has been seeking, he said, along with relief from impact fees. The group argues that builders need to cut costs given the current state of the industry. But city and town leaders want nothing to do with relaxed building standards. “I’ve pretty much got the emphatic ‘no’ from everybody,” said Baxley. (www.eastvalleytribune.com)
East Valley Tribune (4/4/09); David Woodfill

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Home Builders Call Cul-de-Sac Rules a Dead End

Virginia builders say that new regulations greatly reducing the number of cul-de-sacs allowed in neighborhoods will hamper their business. The requirements were passed last month by the Commonwealth Transportation Board, which establishes policy for the state’s transportation system. The regulations require the secondary roads found in subdivisions to be through streets that provide connectivity to primary roads and adjacent neighborhoods. Subdivisions that do not meet the requirements will not be admitted to the state road system and not eligible to receive maintenance funding from the Virginia Department of Transportation. Michael Toalson, executive vice president of the Home Builders Association of Virginia, said the new regulations will make building new neighborhoods more expensive for developers. “There will be shorter streets and more intersections. That makes fewer lots available for homes and it increases the cost of development because storm water management and signalization at intersections is expensive,” Toalson said. He said the regulations would substantially reduce the number of homes that can be built on a tract of land, which means the cost of land is divided by fewer homes. Toalson said that adapting to the new regulations will bring the subdivision model that has dominated the Richmond, Va. metro area to an end. Under the requirements, new secondary roads must meet a certain “connectivity index,” which is a ratio of road segments to intersections. The higher the ratio the better, encouraging builders to lay out subdivision streets in a way that conforms to a grid. The rules also call for narrower roads, reducing allowable width by as much as seven feet. (www.richmondbizsense.com)
Richmond BizSense (4/2/09); Al Harris

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Bidding Wars Over a House? Real Estate Pros See Bottom

One hour outside of Washington D.C. in the picturesque city of Martinsburg, W.Va., some homes for sale are once again attracting bidding wars. “Prices are so low, we’re starting to see that,” says Mark Savitt, a Realtor® there for a quarter of a century. “In our area, you’re at the bottom.” “There are encouraging signs that we’re near a bottom,” says Nomura International’s chief economist David Resler, who is among those who have been calling for a bottom in the late first half of 2009. “The signs of improvement we’ve been seeing have to be recurrent. One to two months isn’t enough to establish it; it needs to be a stretch.” The eastern panhandle of West Virginia is but one market, but there’s even anecdotal evidence that conditions are better in the diverse markets around the country. “The hardest hit areas — California, Florida — are hinting at a bottom,” says economist David Jones, another housing optimist. NAHB expects housing starts to be relatively depressed and fall until a surge of activity at the end of 2009 and in the first and second quarters of 2010. “We expect [the first] quarter…to be the worst and there will be some improvement in the second quarter,” says NAHB Chief Economist David Crowe, who adds that lower interest rates are having only a marginal impact. (www.cnbc.com)
CNBC.com (4/1/09); Albert Bozzo

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