Archive for July, 2013

The S&P/Case-Shiller home price index was up 12.2% compared to a year ago, slightly better than the 12.1% rise in April. It was the biggest year-over-year jump in prices since March 2006, near the peak of the housing bubble. Prices in two cities – Dallas and Denver – hit record highs, topping even the peaks they reached during the housing bubble.

However, the national index, which measures prices in the 20 largest markets, is still 24.4% below the peak of June 2006.

Just a year ago, the index posted a 12-month decline in prices. Sellers had been struggling while their homes languished on the market for months, or even years. But prices have increased every month since June 2012, and each month the increase has been greater than the month before.

The gain in home prices has now made this a good time to sell a home. Many sellers are finding themselves in the midst of bidding wars, with buyers eager to make a purchase in a market with a tight supply of houses available for sale. House hunters are also eager to lock in a mortgage while rates are still low, at least by historic standards.

The record low mortgage rates of earlier this year have risen significantly, crimping the purchasing power of potential home buyers. But climbing rates have yet to slow the rapid increase in home prices.

Additionally, prices are being boosted by a sharp drop in foreclosures, which had been holding prices down.

“Home prices continue to strengthen,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. All 20 markets measured in the index have higher prices than they did in April. The housing market’s recovery has been an important factor in the nation’s overall economic improvement.

 Many of the markets with the biggest year-over-year changes in prices are those that were hit hardest by housing’s collapse. Prices in San Francisco, Las Vegas, Phoenix and Atlanta are all up more than 20% from a year ago. New York had the most modest rise with a 3.3% increase.

But the rapid price gains over the last year are at a level that no expert thinks can be sustained. Some have even suggested it was unhealthy for the market, raising the risk of anew housing bubble, at least in some regions. The rapid rise of housing prices in the middle of the decade eventually sparked the crisis in the financial markets and the Great Recession.

But Joseph LaVorgna, chief US economist for Deutsche Bank, said he believes prices still have room to increase further, even if their pace slows.

“Affordability remains near historic highs despite the recent rise in rates and home prices,” he said. “And the increase in home prices should encourage banks to ease lending standards for mortgages, since the collateral for the underlying loan is appreciating in value.”


The City of Arroyo Grande Recreation Services Department invites people of all ages to attend a Summer Carnival on Friday, August 9th from 11:00 a.m. to 2:00 p.m. at Elm Street Park. Game booths with toy and candy prizes, a bounce castle and a barbecue lunch are sure to please children and adults. In addition, the Annual Summer Playground Pinewood Derby Race will take place at approximately 1:30 p.m. Children from the summer child care programs will race their cars for 1st, 2nd, and 3rd place trophies in various categories. Anyone with a car may join in the fun. The cost of the carnival is $2.00 for unlimited use of the game booths. The bounce castle is an additional $2.00. Hamburgers and hotdogs will be barbecued to perfection and served with chips and punch. A hamburger lunch is $3.50 and a hotdog lunch will be $2.50. For more information and to join the derby car race, call the Arroyo Grande Recreation Services office at 473-5474 or 473-5476.

Low inventory coupled with rising mortgage rates and home prices are leading prospective buyers to consider using “aggressive” tactics such as overbidding to obtain a home, according to recent survey from Trulia.

In order to secure the desired home, 25 percent of prospective buyers in the survey said they were willing to bid 1 to 5 percent above the seller’s asking prices.

“Although buying a home is still much cheaper than renting, it’s a stressful time to be a homebuyer,” said Jed Kolko, Trulia’s chief economist. “Consumers are worried that mortgage rates and prices will keep rising before they buy, and many are willing to fight over the limited number of homes for sale”

When it came to overbidding, younger buyers (aged 18 to 34) are more likely to use the strategy.

According to Kolko, Millennials are “more willing than their parents’ generation to outbid, borrow, or make a personal plea to get the house they want.”

For example, another 9 percent of respondents said they were willing to bid 6 to 10 percent over the asking prices, while 12 percent of younger respondents said the same.

Just 4 percent said they were willing to go 10 percent above the asking prices, while 7 percent of younger respondents were willing to go to that length.

Twenty-five percent of respondents also said they were willing to pay for the seller’s closing costs to get the home they want, though for Millennials, the share was 30 percent.

Additionally, the survey showed 17 percent of buyers would write a personal letter to the seller, while 23 percent of Millennials said the same.

The survey, conducted by Harris Interactive, also examined top worries and found rising mortgage rates weighed on the minds of 41 percent of potential buyers.

Another 37 percent cited rising home prices as the top concern, while 36 percent said they were worried about not finding a home for sale they would like.

Other worries in the top five were concerns of not qualifying for a mortgage (30 percent) and competing with many other buyers (27 percent).

Like most real estate agents, Tarek El Moussa saw much of his livelihood evaporate in the housing bust.

But with prices beaten down, El Moussa also started seeing bargains everywhere. He bought a Santa Ana condo for $115,000 in 2010, made modest renovations and flipped it for a $35,000 profit. Last year, he repeated the process 20 times and this year expects to flip 50 homes.

“I absolutely loved it,” El Moussa said about that first house flip. “I made a good profit, and I saw the opportunity to do it not only once, but do it over and over.”

With Southland home prices rising in a fast-paced recovery, home flippers have returned to the market in force. In May, investors flipped 1,377 homes — a level not seen since the height of the housing boom, when investors turned over 1,394 homes in June 2005, according to real estate research firm DataQuick. The firm defines flipping as buying and reselling a home within six months.

The frenzy has brought new interest in home flippers as celebrities, after earlier TV reality shows featuring them went the way of the housing market. “Flip this House,” on A&E, was canceled in 2009. Bravo’s “Flipping Out” first aired in 2007 but switched gears after the second season to focus on interior design. El Moussa has turned his experience into a new show, “Flip or Flop,” which premiered on HGTV in April.

After the crash, experts — in hindsight — pointed to get-rich-quick home flipping as a missed warning sign before the housing bubble burst. But whether the return of flipping constitutes cause for alarm remains a murkier question.

Many housing experts and economists say it may simply signal a healthy recovery — a quick bounce back from prices that had dropped sharply. Others see it as a sign that fast-rising markets may again be getting overheated. In Southern California, the median price has seen year-over-year increases of more than 20% in every month so far this year, according to DataQuick, hitting a record 28% in June.

“No matter how you look at it, flipping levels are high in a historical context,” said DataQuick spokesman Andrew LePage. “If the rate shot up from here, then I think that does become a warning sign.”

The return of flipping to pre-recession levels surprised Richard Green, director of the USC Lusk Center for Real Estate.

“Back then, you could buy a house without any money down,” Green said. “When people failed to repay their loans, it led to a cascading effect.”

Bankers have since tightened access to credit considerably. That means investors are putting their own money at risk, which gives Green some comfort that the flipping resurgence doesn’t necessarily signal a new round of irrational investing.

“If people are acquiring houses with very low down payments, then I would be very worried,” he said.

Investors in Los Angeles County flipped 419 homes in June, about 150 fewer than the peak. Orange County investors flipped 133 homes last month, down about 60 from the peak in that county. But San Diego County investors recently broke housing-boom records, flipping 301 houses in May.

Across the region, the ratio of homes flipped to total sales has already surpassed pre-recession levels, the data show. The peak ratio broke records this year, when the rate of homes flipped sat at 7% in February. The rate was 5.6% for June.

Scott Mednick recently bought a fixer-upper home in Mission Viejo for $389,000. After investing $60,000 on renovations, he sold it for $545,000 — netting nearly $100,000.

When prices and sales were slow, from 2007 to 2009, would-be investors were hesitant to jump into a market they didn’t understand, said Mednick, president of the Orange County Investors Club, an education and networking group for real estate investors.

“Now I think there’s a frenzy that’s going on,” he said.

The number of Southern California home flips declined slightly in June, to 1,194. But the figure has hovered above 1,000 for the last 11 consecutive months, compared with fewer than 200 during low points of the recession.

Large profits are attainable, Mednick said, but only with hard work and hard-won market intelligence. Beginning investors have to be flexible and willing to work all over the region to be successful, he said.

“You’ve got to go where the deals are,” he said.

Lin He, who has been flipping homes since 2009, said home investing involves big risks — the whims of the market can quickly put you out of business. To compete, He said he takes on more complicated projects than a typical investor and often invests more money. Still, He expects home prices to rise for an additional three to five years.

Mednick was slightly less optimistic, predicting the price run-up would last two to three years. More and more beginning investors, he said, will jump into the market as prices continue to rise.

“But there will be a point when it gets so hot that a lot of the big investors will be pulling back,” he said.

For now, flipping is back on investors’ radar screen — and the TV screen, He said.

“It never occurred to me that flipping a house is part of pop culture,” He said. “That’s crazy to me.”

By: Cale Ottens

Representatives from both sides of the aisle on the House Financial Services Committee took to their soapboxes Tuesday, defending and/or combating the proposed Protecting American Taxpayers and Homeowners (PATH) Act, with the ultimate goal in mind to end the status quo of having too much government in housing.

The legislation proposes an end to the taxpayer-funded bailout of Fannie Mae and Freddie Mac, while phasing out the enterprises within five years. Additionally, the bill wants to increase competition by ending the enterprises’ monopoly over the mortgage finance system.

However, Democrats from the committee combated the bill, signaling that the proposal eliminates the 30-year fixed-rate mortgage, which they fear could hinder taxpayers from experiencing the American Dream of homeownership.

“The reason the 30-year fixed-rate mortgage exists today is because we rescued Freddie Mac and Fannie Mae after the private entities in the market ran for the exits and took trillions of dollars,” cautioned Rep. Stephen Lynch, D-Mass.

He added, “The private-label securitization market dropped to zero in the midst of the crisis. The bill proposes a fully privatized mortgage market, which is dangerous and could cause damage to the housing market.”

However, Republicans combated the criticism, stating that the proposed legislation allows for the continued use of a 30-year fixed-rate mortgage through the creation of a liquid qualified securitization market.

Under such a market, the traditional and bulk of the mortgage market would be standardized and new pools of mortgages would be formed based on credit characteristics of such mortgages, explained Rep. Scott Garrett, R-NJ.

“With the compromises made in this legislation to preserve the 30-year fixed mortgage, to allow the government to increase its role during times of economic uncertainty, and to ensure access to the platform for financial institutions of all sizes, this bill does a tremendous job of striking the delicate balance between protecting taxpayers and transitioning to a new, more stable housing finance model,” Garrett stated.

The continued concern Democrats raised throughout the hearing was the lack of equal input from both sides — an issue that members of the Senate Banking Committee have overcome with the creation of a GSE reform bipartisan bill.

“While I’m appreciative of your holding this markup, I’m disappointed in your lack of doing so behind closed doors and not asking for any Democrat input,” explained Maxine Waters, D-Calif.

She continued, “We have a bipartisan housing reform bill in the other chambers of this body. We should strive toward the same outcome.”

After a somewhat slow first quarter, the national housing recovery took the pace up a few notches in Q2,Zillow reported.

According to the company’s second-quarter Real Estate Market Reports, the U.S. Zillow Home Value Index (HVI) rose to $161,100 as of the end of June—up 2.4 percent quarter-over-quarter and 5.8 percent year-over-year.

The second quarter’s increase was the largest annual gain since August 2006 and the largest quarterly gain since the fourth quarter of 2005—as well as the second-largest quarterly gain since 2004. National home values rose only 0.25 percent during the first quarter.

While home value appreciation accelerated in Q2, it also spread to more areas across the country, reaching markets in the Northeast, Midwest, and Southwest that had previously had trouble keeping pace.

All of the top 30 largest metros covered by Zillow saw annual appreciation as of the end of the second quarter, and Zillow believes all are coming back from their respective troughs.

Metros with the largest annual gains in Q2 included Sacramento (29.5 percent), Las Vegas (29.4 percent), and San Francisco (25.5 percent).

While some areas—particularly those where annual appreciation is approaching 30 percent—may seem like they’re experiencing a bubble, Zillow senior economist Svenja Gudell explained that kind of market behavior won’t last.

“Investors are starting to pull out of some markets and regular buyers are coming back, and more inventory is slowly but surely coming on line, both of which will contribute to slowdowns in appreciation,” Gudell explained. “Additionally, in some overheated markets, rapid home value increases coupled with rising mortgage rates will lead to housing prices and financing costs outpacing local income growth, which will also contribute to a moderation of the market.”

Over the next 12 months, Zillow expects home values to rise another 5 percent. Of the 30 largest markets, 29 are expected to see appreciation, with New York being the only exception.

In the rental market, national rents fell quarter-over-quarter by 0.5 percent to $1,282—the first quarterly decline after nine consecutive quarters of rents either increasing or remaining flat. Year-over-year, national rents were up 1.6 percent as of the end of the second quarter.

Distressed property sales have declined drastically in California over the last year, according to a recent report from PropertyRadar.

In June, sales for distressed homes and condominiums plunged 46.5 percent year-over-year in June. On the other hand, non-distressed property sales shot up by 31.3 percent during the same time period.

Government intervention is the main driving force behind the declines in distressed property sales, according to the report authored by Madeline Schnapp, director of economics research at the firm.

For example, PropertyRadar reported California foreclosure sales totaled 2,159 in June, representing a 14.1 percent decrease from May and a 63.6 percent decline

from a year ago. The total for June is also the lowest level for foreclosure sales since January 2007.

The recent drop, according to the firm, is partly a result of guidance from the Office of the Comptroller of the Currency (OCC), which established minimum standards for handling borrower files subject to a foreclosure sale within 60 days.

“As a result of the letter, several of the largest banks – Bank of America, Citi, JP Morgan and Wells Fargo Bank – either slowed or stopped their foreclosure sales in May,” the report stated.

However, the firm says it appears the large have resumed foreclosure sales in the state, which means foreclosure sales are likely to pick back up again in July.

Even though distressed sales are way down, PropertyRadar noted they still account for 30 percent of total sales, which is three times historic averages. Though, a year ago, distressed sales accounted for 50.5 percent of sales.

Meanwhile, Notices of Default (NODs), which mark the first step in the foreclosure process in the state, fell 15.1 percent from May and 60.3 percent from a year ago to 8,317.

The report also revealed that out of 6.9 million homeowners with a mortgage in the state, 2 million are underwater.