Archive for December, 2013

Zillow expects conditions next year to be a bit friendlier to homebuyers—but that doesn’t mean we’ll necessarily see more owner-occupied housing, experts at the real estate marketplace say.

Looking at ongoing trends, Zillow made four major predictions about the course of housing over 2014.

First, home values are forecast to rise by 3 percent at the national level over the year. The prediction projects a retreat from 2012 and 2013 levels, which Zillow says were “unsustainable and well above historic norms for healthy, balanced markets.”

“This year, home value gains will slow down significantly because of higher mortgage rates, more expensive home prices, and more supply created by fewer underwater homeowners and more new construction,” said Dr. Stan Humphries, Zillow’s chief economist. “For buyers, this is welcome news, especially for those in markets where bidding wars were becoming the norm and bubble-like conditions were starting to emerge.”

Second, the company predicts mortgage rates will reach 5 percent by the end of the year—a level not seen since early 2010—as the economy improves and the Federal Reserve adapts its policies. That news may not be as bright for buyers, but Erin Lantz, director of mortgages for Zillow, says it’s important to keep perspective.

“While this will make homes more expensive to finance—the monthly payment on a $200,000 loan will rise by roughly $160—it’s important to remember that mortgage rates in the 5 percent range are still very low,” Lantz said. “Because affordability is still high in most areas relative to historic norms, rising rates won’t derail the housing recovery.”

However, Lantz noted affordability has already turned into an issue for some markets, particularly those in California.

For its third prediction, Zillow again turned to the positive, forecasting a clearer road to mortgage credit.

“The silver lining to rising interest rates is that getting a loan will be easier. Rising rates means lenders’ refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards,” Lantz said.

And finally, the last prediction: Homeownership rates will fall to their lowest level in nearly two decades, dipping below 65 percent for the first time since 1995.

“The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households—seven out of 10—in a home, if only temporarily,” Humphries said. “That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65 percent for the first time since the mid-1990s.”

Zillow also combined data on unemployment, population growth, and its own Home Value Forecast to glimpse into what it believes will be the hottest markets in 2014.

The list includes a diverse set of metros spread across all regions of the United States, including: Salt Lake City, Utah; Seattle, Washington; Austin, Texas; San Jose, California; Miami, Florida; Raleigh, North Carolina; Jacksonville, Florida; San Diego, California; Portland, Oregon; and Boston, Massachusetts.

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Pending home sales nationwide remained essentially flat last month, as buyers struggled to adjust to higher prices and mortgage rates.

The National Assn. of Realtors said Monday that its pending sales index, which is adjusted for seasonal swings, rose just 0.2% from October. The index was 1.6% below November 2012 levels.

The slight increase in November came after five straight monthly declines, but missed analysts’ expectations.

“Although the final months of 2013 are finishing on a soft note, the year as a whole will end with the best sales total in seven years,” the association’s chief economist Lawrence Yun said in a statement.

The market has likely reached a “a cyclical low” and positive job creation and household formation should spur stable contract activity next year, Yun said.

The pending sales index, which covers contracts signed, but not yet closed, fell in the Northeast and Midwest. Signed contracts for previously owned homes rose in the South, as well as the West, where the index climbed 1.8% from a month earlier.

The Realtor group said the strong price gains seen earlier this year, coupled with higher mortgage rates, will produce “more modest growth in values” in 2014.

Source: LA Times

Based on early estimates of home values, properties nationwide are expected to gain almost $1.9 trillion in cumulative value in 2013, according to Zillow.

By the end of the year, analysts for the real estate marketplace predict home values will be a cumulative $25.7 trillion, up 7.9 percent from the end of 2012 (which in turn was up 3.9 percent from 2011).

If the figures work out, it would be the second straight annual gain in total home values and the largest increase since 2005, Zillow says.

“In 2013, the housing market continued to build on the positive momentum that began in 2012, after the housing market bottomed. Low mortgage rates and an improving economy helped bring buyers into the market, boosting demand and driving prices up,” said Zillow chief economist Stan Humphries. “We expect these gains to continue into next year, though at a slower pace.”

What’s more, Zillow researchers believe the value of the nation’s housing stock has recovered about $2.8 trillion—about 44 percent—of the value it lost from 2007 through 2011.

Out of the 485 total metro areas analyzed by Zillow, about 90 percent experienced home value gains in 2013. Of the 30 largest metros, those with the biggest increases in overall value included Los Angeles (which gained $323.1 billion), San Francisco ($159.2 billion), New York ($123.1 billion), Miami ($83.3 billion), and San Diego ($71.5 billion).

The coming year is expected to be a little kinder to home buyers. While affordability will continue to be a problem in hot markets like New York and San Francisco, buyers in general may find they have more homes to choose from and more lenders vying for their business.

Here are some likely trends to watch in 2014.

MORTGAGE RATES CONTINUE TO CLIMB. As the economy improves and the Federal Reserve winds down its monetary stimulus, mortgage rates will rise to reflect that lack of stimulus, said Erin Lantz, the director of mortgages at Zillow.com. She predicts 30-year fixed-rate loans will hit 5 percent for the first time since 2010. That’s still historically low, and rising rates are a sign of a stronger economy.

“Higher rates would go hand in hand with higher employment, increasing incomes — changes that are increasing household purchasing power,” said Jed Kolko, the chief economist of the real estate website Trulia.

LENDERS LOOSEN UP, A LITTLE. Rising rates will also mean fewer borrowers seeking to refinance out of higher-priced mortgages. Lenders will try to fill that gap in capacity by competing more aggressively for purchase business. Ms. Lantz expects some modest easing in requirements for minimum credit scores, maximum loan-to-value ratios, and debt-to-income ratios. “Lenders will look for where they have room to widen these guidelines conservatively,” she said.

Regulatory guidelines that take effect in January will set parameters on how much easing lenders can do without straying outside the government’s “qualified mortgage.” Lending outside that safe harbor isn’t likely to be liberal, and will mainly consist of low-risk loans to the wealthy, said Bob Walters, the chief economist of Quicken Loans, an online lender.

HOMEOWNERSHIP RATES FLATTEN OR FALL. It may seem counterintuitive that the level of homeownership would be unresponsive to improving market conditions. But the national rate is only just stabilizing — at around 65 percent — after dipping from the historically highs during the housing bubble. “I don’t see us going up substantially from here,” Mr. Walters said. “We’re likely to level off where we’re at now.”

And those young adults who, because of a stronger economy, are finally able to find jobs and move out of their parents’ homes are more likely to rent than buy. “Ironically, that would bring down the homeownership rate,” Mr. Kolko of Trulia said, “not because there are fewer homeowners, but because there are people who were out of the housing market who are getting back in as renters.”

ARMS, CASH-OUT ‘REFIS’ MAKE A COMEBACK. Adjustable-rate mortgages, or ARMs, were viewed as risky after the housing-market collapse. But they are slowly regaining their appeal, and as rates on fixed-rate mortgages rise, more borrowers will take advantage of lower-rate adjustables. “This almost exclusive focus on the 30-year fixed mortgage will lessen over time,” Ms. Lantz said. “As rates go up, ARMs might become more important options for folks, especially the longer-term ARMs,” in which interest is fixed for seven or 10 years.

Cash-out refinancing was also abandoned after the collapse emptied borrowers of equity. Mr. Walters expects that as values continue to climb, more people will again look to unlock their growing equity. Interest rates will still be low enough to make cash-out refinancing an option for many people. “I think we’ll see a trend toward cash-out again,” he said. “It won’t be en masse, but we will start to see it.”

By LISA PREVOST

The November residential and foreclosure sales report from RealtyTrac shows that sales of homes, condominiums and town-homes saw a slight uptick between October and November 2013 – up less than 1% to 5,146,565.

More positively, that’s a 10% increase for sales over November 2012.

According to RealtyTrac’s numbers, annualized sales declined from October to November 2013 in 18 states, and were down from a year ago in four states.

“The housing market recovery continued to be driven by investors and other cash purchasers in November,” said Daren Blomquist, vice president at RealtyTrac. “Lenders are taking advantage of this environment to unload more of their bank-owned inventory and in-foreclosure inventory at the foreclosure auction.”

“But as the backlog of distressed inventory available dries up in many of the markets with the most efficient foreclosure processes — namely California, Arizona and Nevada, with Georgia not far behind — overall sales volume is declining and will continue to do so until more non-distressed sellers enter the market,” he said.

Median sales prices mirrored the percentage gains in sales. The median sales price of all residential properties (this includes both standard and distressed properties) was $169,000 in November, up 1% from October and up 7% from November 2012. That makes 19 consecutive months of median home price increases on an annualized basis.

Interestingly, a lot of the sales were driven by investors and other cash purchasers, as was the case over the past several months. All-cash purchases accounted for 42.0% of all residential property sales in November, up from 38.8% in October and also up from a year ago to the highest level since RealtyTrac began tracking all-cash purchases in January 2011.

States with the highest percentage of cash sales were Florida (62.7%), Georgia (51.3%), Nevada (51.0%), South Carolina (50.3%), and Michigan (49.0%).

“Currently about 85% of the Reno housing market has returned back to equity sales,” said Craig King, COO of Chase International, which covers Reno, Nev., and Lake Tahoe markets.  “We have experienced this trend for most of 2013 as home sales appear to be taking on the first in, first out dynamic.”

Sales declined most in the following states: California (down 14%), Arizona (down 12%), Nevada (down 9%), and Rhode Island (down 4%). Annualized sales volume declined from a year ago in 14 of the nation’s 50 largest metros.

Other significant finds centered around investor buyers and foreclosure auctions:

  • Institutional investor purchases represented 7.7% of all residential property sales in November, up from 7.1% in October and up from 6.3% a year ago.
  • Markets with the highest share of institutional investor purchases included Columbus, Ohio, Phoenix, Atlanta, Jacksonville, Fla., and Cape Coral-Fort Myers, Fla.
  • Sales of bank-owned homes (REO) accounted for 10.0% of all residential property sales in November, up from 9.1% in October and 9.4% a year ago. November marked the third consecutive month where REO sales increased from the previous month.
  • Metro areas where REO sales accounted for at least 20% of all sales and increased from a year ago included Stockton, Calif., Las Vegas, Cleveland, Riverside-San Bernardino, Calif., and Phoenix.
  • Sales to third-party investors at the foreclosure auction represented 1.3% of all residential property sales in November, up from 0.8% of sales in both the previous month and a year ago to the highest level since RealtyTrac began tracking third party foreclosure auction sales in January 2011.
  • Metro areas with the highest share of third party foreclosure auction sales were Miami (4.0%), Atlanta (3.9%), Jacksonville, Fla. (3.9%), Orlando (3.6%), and Las Vegas (3.6%).

In California at least, home buyers are willing to pay a premium for solar.

A new study from Lawrence Berkeley National Laboratory finds that houses with rooftop solar panels sell for higher prices than comparable non-solar homes.

In general, that premium more than covers the cost of the panels themselves, with homeowners making a small profit on their solar investment. Bigger solar arrays fetch higher premiums than smaller ones.

But the study also includes a caveat: Buyers appear to prefer newer solar systems to older arrays. The premium a solar home commands declines with the age of the photovoltaic panels.

“The take-away here is the market is showing that PV is valued by home buyers,” said Ben Hoen, staff research associate at the laboratory and the study’s lead author. “There could be a green cachet for the PV system that would be over and above the expected price.”

The study, “Exploring California PV Home Premiums,” examined sales data for 1,894 solar homes and 70,425 comparable non-solar houses sold in California from 2000 through 2009. It builds on an earlier study released by the lab in 2011 that noted the solar premium but didn’t explore it in the same depth.

The authors found that the size of a solar array can make a big difference in a home’s resale value. Among the houses studied, that value increased about $5,900 for each kilowatt that an array can generate. Most home solar systems can produce between 2 and 5 kilowatts of electricity.

But the premium falls with age, dropping about 9 percent for each year that the array has been in place. That presents a bit of a puzzle. The amount of electricity generated by a silicon solar panel does decline over time, but only by less than 1 percent per year. The premium, in other words, falls much faster than the panel’s output.

“They might be perceived as older technology, even if they’re still producing electricity at the expected rate,” Hoen said.

He cautioned that the premium is not set in stone. Some homeowners will get more for their solar-equipped houses, and some will get less.

“We do not have that level of precision down to a single dollar,” Hoen said. “An individual home is going to have its own, individual premium for PV.”

Hoen and his fellow researchers plan further updates, using more recent sales figures from multiple states – not just California.

After all, much has changed in the solar market since 2009. The price to install a home solar system in California has been cut nearly in half, from $10.73 per watt at the start of 2009 to $5.71 per watt this year, according to statistics from the state.

In addition, most homeowners going solar now choose to lease their panels rather than buy them outright. Residential solar leases had just begun in 2009, and they weren’t examined in the current Berkeley Lab study. Researchers will include them in the study’s next iteration, Hoen said.

Assessing the value of home solar systems has been a problem for real estate appraisers. But Hoen noted that the study’s results largely tracked those of an appraisal tool called PV Value, developed by Sandia National Laboratories and the Energy Sense Finance consulting firm.

“Valuing homes with green technologies of various kinds is becoming more common,” he said. “It’s not a process that happens overnight, but it is happening.”

According to Zillow’s October Market Health Index, the healthiest housing markets are in California and other areas in the western United States.

The top five markets with the healthiest index readings were San Jose (Index of 9), San Francisco (8.9), Los Angeles (8.6), San Diego (8.4), and Denver (8.1). The next five markets were Boston, Pittsburgh, Portland, New York, and Sacramento.

The study reveals home values in the leading market, San Jose, have increased 19.6 percent compared to one year ago, with a median selling price of $731,500. Home values in San Francisco, the second healthiest market, actually increased 24.1 percent.

Zillow’s chief economist Dr. Stan Humphries explained the benefits of the robust situation in these areas, and added a bit of caution: “Rapid home value appreciation in the West, particularly California, is currently having a very positive effect on a number of other factors, including negative equity, foreclosure activity, and the overall financial health of local homeowners. But that same rapid

appreciation may cause affordability issues in the future in these markets, leading to potentially unhealthy conditions,” he said.

“The housing market is complex, and while individual statistics can be useful in describing a single aspect of a given market, one number on its own can’t tell the full story,” Humphries continued. “As markets continue to evolve and recover, the Market Health Index will reflect these changing trends, offering consumers a valuable tool on which to base their decisions.”

Zillow’s Market Health Index measures different metrics on a scale from 0 to 10. Its purpose is to illustrate the current health of a region’s housing market compared to similar markets nationwide. It is calculated monthly to compare market trends by ZIP code, neighborhood, city, county, metro, and state levels. The findings include all single-family residences, condominiums and cooperatives.

Among the 10 categories Zillow measures are:

  • Changes in home values
  • How long homes stay on the market
  • Foreclosures
  • Delinquencies
  • Negative equity

A low Market Health Index score does not necessarily mean a market is performing poorly across all categories, but simply that other markets are performing a bit better in terms of increasing home values or fewer foreclosures.

For more information, visit Zillow’s newly re-designed local information pages, offering users easy access to more data. Zillow operates one of the largest Internet and mobile-based home-related marketplaces, helping people find timely information about homes and connect with local professionals.