Good Real Estate News: Home Equity Is Rising Again
With all the bad news about underwater home owners and strategic walkaways, you might think that American home owners’ equity holdings are in the tank. But the least-publicized recent statistic on real estate is that, despite these scary reports, home equity is again on the rise. According to the Federal Reserve’s most recent “flow of funds” survey, home owners’ net equity grew by nearly $1 trillion from the recession’s nadir in the first quarter of 2009 through the third quarter. From June 30 to Sept. 30, net equity rose by $418 billion. That’s not all that impressive compared with the quarterly increases during the hyperinflationary housing boom years, but it could signal something important. After three years of unprecedented shrinkage in home equity — and three years of rapid expansions in the number of underwater borrowers with negative equity — there are signs that the down cycle may be shifting. (www.washingtonpost.com)
Washington Post (2/13/10); Kenneth R. Harney
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Battling Back, Home Builders Cut Prices, Work Faster
Home builders have lost half their share of the U.S. housing market in the past two years, largely because of competition from cheap foreclosed houses. In 2009 only 7.6% of the homes sold were newly constructed, down from the average of about 16% over the previous decade. But home builders are fighting back, cutting prices, promising to complete homes faster and warning about the risks of buying foreclosed property. Their efforts may be starting to pay off. “If you want to be competitive with foreclosures, you’ve got to drive your prices down,” says Steven Hilton, chief executive of Meritage Homes Corp. In Maricopa, Ariz., a boom town near Phoenix hit hard by foreclosures, Meritage is offering three-bedroom houses for as little as $99,900, less than half the price of a typical new home there four years ago. Meritage is generally holding prices below $250,000 now in Florida, Arizona and Texas, Hilton says, and they’re below $325,000 in California. Builders can afford to lower their prices now in part because land is much cheaper. They’re also able to squeeze their suppliers and subcontractors harder at a time when less work is available. One of Meritage’s big national rivals, KB Home, is cutting costs partly by standardizing window sizes and floor plans rather than allowing endless local variations. “We build this same product line across the U.S. now,” says Jim Widner, regional president. Most of the homes KB sells in Las Vegas now cost $150,000 to $170,000, he adds. They were typically above $400,000 during the housing boom. Builders are also trying to complete homes faster for people who can’t wait the typical four to six months required for a new home. A large share of today’s buyers want to qualify for a federal tax credit that expires this spring. Meritage says it will guarantee to complete homes in 99 days in some markets. That’s possible, Hilton says, partly because only efficient subcontractors have survived the bust. (www.wsj.com)
Wall Street Journal (2/3/10); James R. Hagerty and Dawn Wotapka
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Lowe’s Rebuilds Profit and Tops Expectations
The improving housing market is finally starting to spill over into other sectors of the economy. Home improvement retailers definitely took a beating as people walked away from their homes and stopped purchasing properties altogether during the recession. Lowe’s, the second-largest U.S. home-improvement retailer, became a victim of circumstances as the housing market spun out of control. The company was forced to make cutbacks and even close some stores that had been open less than a year. But now the company is starting to see some light at the end of the tunnel. Its fourth-quarter results shaped up better than expected, with net income rising 27% to $205 million, or 14 cents a share, from $162 million, or 11 cents, a year earlier. Lowe’s also said sales in stores open at least 13 months may advance as much as 3% this year thanks to a 2.8% January increase in U.S. housing starts. Chief Executive Robert Niblock thinks the worst of the economic cycle is behind the company. He said “while the psychological impact of falling home prices and an uncertain employment picture continue to weigh on consumers, improving comparable-store sales trends, including improvement in many bigger-ticket, project categories, provides an encouraging sign that consumers are gaining the confidence to take on more discretionary projects.” (www.investorguide.com)
Investorguide.com (2/22/10); InvestorGuide staff
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Housing’s Crystal Ball
Economists are generally predicting that mortgage rates will begin to edge up in late March, settling at about 5.5%, possibly as high as 6%, for a 30-year, fixed-rate loan, up from about 5% today. They also expect the inventory of foreclosed homes to grow through the summer, saturating some markets with cheap properties and keeping overall prices low. “I wouldn’t rush,” said Mark Zandi, the chief economist at Moody’s Economy.com, “but if I found a house I was excited about, I wouldn’t wait. You might not be buying at the very bottom but you’ll still get a great rate, and if you stay for more than a few years, you’ll be rewarded” by appreciating home prices. Two factors could push rates higher, economists say. First, the Federal Reserve is set to stop subsidizing the mortgage market sometime next month, when it exhausts the roughly $1.25 trillion earmarked for mortgage-backed securities sold by Fannie Mae and Freddie Mac. The government stepped in as a buyer during the mortgage market crisis, when most investors had rejected these securities. Economists expect investors to re-enter the market, but only if rates on the securities become more attractive. Secondly, mortgage rates typically move in lockstep with the long-term economic outlook. Economists generally believe that the nation is in the early stages of a slow recovery, and that as the recovery proceeds, interest rates will go up. (www.nytimes.com)
New York Times (2/17/10); Bob Tedeschi
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More Generations Live Under Same Roof
Demand is escalating for multi-generational housing as buyers scale down during the deepest housing crisis since the Great Depression, according to a survey by Coldwell Banker Real Estate in Parsippany, N.J. Thirty-seven percent of the company’s real estate agents polled in January said that in the past year, buyers were increasingly shopping for homes that fit more than one generation. Almost 70% of the agents said they expect economic conditions will drive still greater demand for this type of housing over the next year. “More buyers are pooling investments, considering bringing mom and dad into it,” said Diann Patton, A Coldwell Banker real estate consumer specialist based in Grass Valley, Calif., in an interview with Reuters. Buyers were primarily driven by financial concerns when deciding to combine generations in a household, the survey found. Health concerns were the second most common reason and strong family bonds a distant third. Patton said one of her clients sought to bring her mother out of a health care facility. The mother and daughter pooled resources, buying a house with separate entrances with units for each and room for a caregiver. (www.reuters.com)
Reuters (2/22/10); Lynn Adler
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Refinancing Unavailable for Many Borrowers
The refinancing wave that swept the nation when mortgage rates hit historic lows last year is petering out, leaving behind millions of home owners who could not qualify for the best rates. Half of the nation’s borrowers have mortgages with rates above 6% even though the average rate on 30-year, fixed-rate mortgages has been about 5% for most of the past year, according to research firm First American CoreLogic. More refinancing would have helped household budgets, but also the national economy because home owners might have spent some of the extra cash they pocketed, giving the recovery an added lift. Many borrowers who tried to refinance have found they’re stuck because the value of their home has tumbled and their equity has melted away. Others have been shut out because lenders tightened their requirements, demanding stellar credit and low debt. (www.washingtonpost.com)
Washington Post (2/14/10); Dina ElBoghdady and Renae Merle
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