Archive for the ‘National Real Estate News’ Category

Southern California remains home to the most overpriced housing markets in the country, but any fears of a new bubble look increasingly unfounded.

That’s according to a new report out Tuesday from real estate website Trulia, which monitors bubble conditions by tracking home prices relative to household incomes and long-term norms in markets nationwide.

After surging last year, prices here have cooled off this spring, giving the job market time to catch up. While Trulia says three of the four most “overvalued” housing markets in the nation are in Southern California — Orange County, Los Angeles County and the Inland Empire — those markets are far less overvalued than they were in the mid-2000s, when risky lending pushed prices far beyond what household incomes would bear. This time, price gains are slowing down as would-be buyers pull back and lending standards remain high.

“We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not. Furthermore, the market is neither overbuilding nor overlending,” Kolko wrote. “On all these measures, the housing market today looks little like the bubble last decade.”

Still, if there’s a place where home prices are out of whack with incomes, the Southland is it. Prices in Orange County were 17% overvalued in the second quarter, by Kolko’s estimate. In Los Angeles they were 15% overvalued and in the Inland Empire, 13%. That’s compared with 71%, 79% and 92%, respectively, for those markets at the peak of the housing bubble in early 2006.


The latest readings on United States home prices are the latest confirmation of a slowdown in that area: Prices are still rising in most cities, but much more slowly than they were a few months ago. And that’s news we should cheer.

The S&P/Case-Shiller index of home prices in 20 major cities rose 0.2 percent in April, down from 1.2 percent in March and well below the 0.8 percent that analysts forecast. Over the last year, prices have risen 10.8 percent, compared with a 13.7 percent gain in the year ended in November, the recent peak. A second report on home prices out Tuesday, from the Federal Housing Finance Agency, showed the same pattern.

Just two years ago, buying a home looked to be a screaming bargain across most of the country. But the gains in home prices since then have made it a much closer call, as we reported last month. Jed Kolko, the chief economist of Trulia, writes Tuesday that national home prices are only 3 percent undervalued relative to long-term fundamentals, and that a handful of markets, particularly in Southern California, are now significantly overvalued.


Home buyers seem to be drawing the line and paying no more than they can afford.CreditDavid McNew/Getty Images

This doesn’t mean that a bubble on the order of 2006 has returned, only that buyers in some of those higher-priced markets should be wary andconsider renting a home instead if they are on the fence. “Orange County, today’s frothiest market,” writes Mr. Kolko, “is just 17 percent overvalued now versus being 71 percent overvalued” at the start of 2006.

Year-over-year change in S&P/Case-Shiller 20-city home price index

2012   10
2013   5
2014   0

But that moderate potential overvaluation could easily become a major one if double-digit price increases rise too much longer. In a world where inflation is low and wages are flat, continued steep home prices increases would rapidly move the housing market from broadly balanced to unaffordable and primed for a correction in just a few months.

That’s what makes this housing recovery seem healthier and more sustainable than the bubble of the early 2000s. Then, even as home prices soared beyond any traditional level relative to income, home buyers responded by taking on more risk and buying anyway, speculating on further home price gains. This time, they seem to be looking at high valuations and not getting caught up in the excitement, instead drawing the line and paying no more than they can afford.

Home price numbers tend to move in more steady, gradual waves than other economic data. They also come out with long delays; the April Case-Shiller numbers are actually based on transactions that closed from February through April — and those home sales generally went under contract a month or two before they closed.

So the latest home price readings are very much a look in the rearview mirror, and it’s a look that suggests a deceleration is underway. The question is where it will ultimately settle. If prices were rising 13 percent in the year ended in November and 11 percent in April, what will, or should, the level be later in 2014?

The healthiest thing for the housing market would be home price rises that thread the needle: high enough that homeowners are building equity and homebuilders have incentive to start new construction, but low enough that they don’t significantly outpace wage growth and result in unaffordable housing and a painful correction. The April home price numbers suggest we may be heading there.


Realtors expect home prices to continue to appreciate over the next year, with a median price increase expected of 4% over the next 12 months, according to the latest survey of the National Association of Realtors in their confidence index.

The index reflects the responses of more than 3,000 NAR members about their sales transactions.

The full report can be read here.

“Slower sales due to tight credit conditions, declining affordability due to the recent price growth amid modest income gains, and fewer distressed sales likely account for the modest expectations,” economists note in the report.

Some states are slightly more optimistic about home price increases, such as in Florida, where low housing inventories and high demand are expected to boost prices.

Price growth in Florida is expected in the range of 5% to 7% over the next 12 months.

Real estate professionals in states including California, Oregon, Nevada, Texas, and Georgia are forecasting home prices to be greater than 5% to 6% in the next 12 months.

“The median price for a new home under contract jumped 12.6% over the 12-month period ending in March to $290,000. The median existing home price was 31.7% lower at $198,200, more than three times the historical average spread of 10.8%, suggesting that existing homes are a bargain by historical standards,” said Ken Fears, director of regional economics and housing policy at NAR. “It appears that new home sales have begun to feel the weight of the sharp increase in mortgage rates, home price gains, and the erosion of affordability over the last 12 months. The impact of weather on new production will ease through the summer, resulting in additional inventory coming on line in six to nine months. However, inventory remains tight and prices continue to rise. A moderate increase in inventory will help to steady prices to a historically stable growth path.”

In most states, agents are predicting a 3% to 5% growth in home prices.

Nearly 12 percent of the U.S. population — 35.9 million people — moved between surveys taken in 2012 and 2013, and nearly half cited a housing-related reason as their most important motivation, according to a report from the U.S. Census Bureau.

Many wanted a new or better home or apartment; others wanted cheaper housing. Some wanted to own their home rather than rent, or to live in a better neighborhood or one with less crime. Some had the decision taken out of their hands — they were foreclosed on or evicted.

Moving image via Shutterstock.
Moving image via Shutterstock.

Nearly a third of movers (30.3 percent) cited a family reason for the change, including establishing their own household or change in marital status, among other reasons.

Just under a fifth of movers (19.4 percent) pointed to a job-related reason, such as a new job or job transfer; to be closer to work or have an easier commute; to look for work or due to a lost job; or due to retirement, among other reasons.

Compared to 1999, the share of people moving for better housing declined from 21 percent to 15 percent in 2013, while the share of those moving to form their own household rose to about 11 percent from about 8 percent. Moves due to a new job or transfer remained fairly flat at just under 10 percent.

Those who said the desire for cheaper housing was the most important reason for moving rose from 6 percent in 1999 to 8 percent in 2013. Meanwhile, those moving because they wanted to own rather than rent fell from about 8 percent in 1999 to about 6 percent in 2013.

 Last year, 5 percent moved to be closer to work or for an easier commute, up from 3 percent in 1999.

“We asked people to select the reason that contributed most to their decision to move. Picking one reason can be difficult, as moves are often motivated by many different, and oftentimes competing, factors,” said the report’s author, David Ihrke, a demographer in the Census Bureau’s Journey to Work and Migration Statistics Branch, in a statement.

“For instance, if one’s primary reason for moving is to be closer to work or having an easier commute, they may have to sacrifice other preferences. This could include forgoing cheaper housing options or settling for a different neighborhood. If they mainly want cheaper housing, they may have to deal with a longer commute.”

Moves within the same county were typically made for housing-related reasons, while moves to another county or from abroad were more often made for job-related reasons.

The big house is back.

The average square footage of a new house built last year set an all-time record, according to new figures out Monday from the Census Bureau.

After shrinking for a few years during the housing downturn, home size has surged in this recovery, with the average house built in 2013 weighing in at 2,598 square feet, a closet bigger than the previous record of 2,521 set in 2008. Of the new houses built last year, one-third had at least three bathrooms, and 44% had four or more bedrooms, both all-time highs.

This suggests that, even as some builders focus efforts on denser, more walkable communities, they’re still finding ways to beef up square footage. Another factor could be the focus lately by many home builders on higher-end developments, which tend to be larger than more modest starter-home projects. Either way, it suggests that Americans’ appetite for a big house didn’t go away in the downturn. It just took a breather.

New home sales rose more than expected in April, indicating the housing market may be heating up.

Sales of recently built single-family homes jumped 6.4% from March to a seasonally adjusted annual rate of 433,000, the Commerce Department said Friday.

It was the first increase since January and larger than analysts predicted. Economists polled by Bloomberg News had called for a 425,000 April rate.

The data come one day after sales of previously owned homes climbed 1.3% in April. Those dual increases signal some underlying strength in a housing recovery that has cooled recently.

Buyers have struggled to afford a home after prices jumped last year. And severe weather across much of the country earlier this year also depressed sales.

New home sales are still 4.2% below April 2013 levels.

But mortgage rates have stabilized after jumping last year and remain at historically low levels.That could entice more buyers into the market.

The sales increase from March came largely from the Midwest, where buyers scooped up new homes at a 47.4% faster rate in April.

New home sales rose 3.1% in the South, while remaining flat in the West, a major home building region. Sales dropped 26.7% in the Northeast.

Long ago they were the punching bags of American real estate, accused of rank incompetence, wrecking home sales and failing to pick up on signs of the housing turnaround.

That was then. Today appraisers are suddenly getting much more favorable reviews.

But wait a minute: Have appraisals actually improved in accuracy in any measurable way over the last several years? Nobody really knows. There are no nationally published statistical audits that gauge appraisal accuracy. But one major industry group regularly surveys its members’ sentiments on appraisals, and lately things have been looking up.

When the National Assn. of Realtors conducted polls sampling its million-plus members in the spring and summer of 2010, more than 40% of respondents reported having problems with appraisals.

Within the realty field, criticism of appraisers was rampant and scathing. Appraisers allegedly too often:

•Used rock-bottom-priced foreclosures and short sales as “comparables” for valuing houses that had no financial distress. Those low appraisals blew up perfectly good sales or forced angry sellers to renegotiate prices with buyers.

•Traveled long distances beyond their areas of geographic competence and inevitably were out of touch with local conditions.

•Paid scant attention to evidence that local home prices were on the increase, such as pending contracts, and numbers of properties that sold for above list or that experienced multiple bids.

Worst of all, critics charged, poorly trained appraisers who had flooded the industry during the boom years now were getting the bulk of the valuation assignments from appraisal management companies — primarily because they would work for cut-rate fees.

In the latest monthly survey, NAR pollsters found that 24% of members reported having significant issues with appraisal results. Granted, that’s still nearly a quarter of all agents in the sample. But it’s down significantly from where it was a few years ago.

What to make of this? Have there been changes in the appraisal industry itself that might explain the better reviews out of former critics? Appraisers I interviewed in various parts of the country agree on one key fact: The dramatic decrease in foreclosures and short sales during the last 18 months has cut the number of houses with depressed prices that appraisers can choose — or justify — as comparables for any given sale.

In places such as Las Vegas, Phoenix and California’s Central Valley, where distressed properties once accounted for large percentages of all sales in the wake of the housing bust, today they are far fewer. Gary Crabtree, an appraiser in Bakersfield, says such sales now “only comprise about an 11% share” of transactions. As a result, “there are plenty of arm’s-length” sales for appraisers to use as “comps.”

Pat Turner, an appraiser in the Richmond, Va., area, said the sheer number of appraisers has plunged in recent years “and a lot of the less-competent, poorly trained [appraisers] have left” the business in the wake of the recession. One industry group, the Appraisal Institute, estimated the number of appraisers is declining 3% a year. The steady shrinkage of the industry, Turner believes, could be contributing to perceptions that appraisals are more accurate today.

Gary Kassan, a Los Angeles-area realty agent with Pinnacle Estate Properties, disagrees.

“My personal belief is not so much that the incompetent appraisers are gone,” he said in an email, “but rather that they have better comps to work with.” With prices on the rise, “they have more latitude and are more comfortable stretching the comps to bring the appraisal in at sales price.”

Whoa. Stretching the comps, eh? Appraisers insist that’s not the way it works — they’ve got to justify every conclusion in their valuation reports and are subject to reviews by lenders and underwriters.

But Jayne Allen, an appraiser in Charlottesville, Va., says realty agents’ views on what constitutes a “good” valuation and what’s a deal-killer are keyed to whether the appraisal supports the contract price.

“At this point,” she said, “I do not believe that … appraisers [are] providing ‘better’ valuations.” Rather it’s that more appraisals are validating the number on the contract, thanks in large part to the sharp decline in distressed sales sitting on the market as potential comparables.

Bottom line for you as a seller or buyer: Though there are no guarantees that an appraiser will confirm the price on your sales contract, the odds are better this spring that your deal won’t fall apart because the appraiser came in with a low-ball valuation tied to distressed comps.