Full Housing Recovery by 2018

The Demand Institute, a nonprofit think tank operated by The Conference Board and Nielsen, predicts an uneven recovery for the U.S. housing sector over the next five years. The study says it wont be until 2018 that the median price of single-family homes will be near the peak reached in 2006, before the housing crisis began. But some states will get there faster than others.

The study showed that among the 50 largest metros where housing prices are expected to appreciate between 2012 and 2018, the top five metros (Memphis, Tampa, Jacksonville, Milwaukee, and St. Louis) will see increases averaging 32 percent. The five cities projected to have the lowest price appreciation (Washington, D.C., Oklahoma City, Denver, Minneapolis, and Phoenix) will see gains of around 11 percent.

"The strength of the local housing market is among the most telling metrics that helps us assess community health and well-being," says Louise Keely, chief research officer at the Demand Institute and co-author of the report. Researchers analyzed 2,200 cities and towns in the U.S. and conducted interviews with 10,000 consumers for the report.

The report notes that the double-digit price increases of the last two years were largely driven by investors buying up distressed homes to meet rising rental demands. But the report notes that the main driver of housing demand for the next five years will be the formation of new households, particularly as the economy strengthens and employment rises.

Source: “U.S. Housing Recovery Uneven Across Markets, Study Finds,” Reuters (Feb. 26, 2014)

FHA Loans Getting Easier to Acquire?

First-time and low-income mortgage borrowers may have an easier time qualifying for a Federal Housing Administration loan. Ginnie Mae, a government agency that issues bonds backed by FHA loans, reports that the average credit score on FHA-backed loans fell to 680 in 2013, and the average debt-to-income ratio rose to 40.3 percent — both indicators that credit may be easing.

In comparison, Ginnie Mae reported in January 2013 that the average credit score was 701 and the debt-to-income ratio was 38 percent, and Wells Fargo has reportedly been qualifying FHA borrowers with credit scores as low as 600, down from a previous threshold of 640.

“The FHA theoretically allows credit scores as low as 580,” the L.A. Times reports. “But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.”

Source: “Average Credit Score Falls on FHA Loans,” Los Angeles Times (Feb. 27, 2014)

Warren Buffett: Real estate taught me how to invest

In his annual letter to shareholders, billionaire and Berkshire Hathaway CEO Warren Buffett talks about how two small non-stock investments in real estate from years ago were keys to teaching him about investing. Buffett says in the letter that in 1986, he purchased a $280,000 400-acre farm about 50 miles north of Omaha, Neb. From 1973 to 1981, the Midwest saw an explosion in farm prices, but then the bubble burst and prices declined up to 50 percent or more. That’s when Buffett decided to buy.

“I knew nothing about operating a farm,” Buffett writes. “But I have a son who loves farming, and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10 percent. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out. I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside. There would, of course, be the occasional bad crop, and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property.”

Now 28 years later, Buffett says the farm has tripled its earnings and is worth five times or more what he originally paid for it.

He also talks in the letter about another key small investment he made in 1993: a New York retail property adjacent to New York University that the Resolution Trust Corp. (RTC) was selling. He made the purchase just after the bubble had burst in the commercial real estate market.

“Here, too, the analysis was simple,” Buffett writes about purchasing the property with a small group of investors. “As had been the case with the farm, the unleveraged current yield from the property was about 10 percent. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20 percent of the project’s space – was paying rent of about $5 per square foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere. … Annual distributions now exceed 35 percent of our initial equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150 percent of what we had invested.”

Buffett says he uses the two stories to teach fundamentals of investing, such as the importance of focusing on the future productivity of an asset and its prospective price change.

“My two purchases were made in 1986 and 1993,” he writes. “What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in determining the success of those investments. … A ‘flash crash’ or some other extreme market fluctuation can’t hurt an investor. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values.

“A climate of fear is your friend when investing; a euphoric world is your enemy.”

Source: “Buffett’s Annual Letter: What You Can Learn From My Real Estate Investments,” Fortune (Feb. 24, 2014)

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Florida Cities Leading the Nation for Home Price Increases

A report from Black Knight Financial Services (formerly Lender Processing Services) finds that December home values in the U.S. are within 13.9 percent of the peak reached in 2006.

Black Knight’s Home Price Index (HPI) found nationally that home values rose 0.1 percent month-to-month (compared to November 2012 numbers) and 8.4 percent year-to-year. The high point for U.S. home prices was $270,000 in June 2006. In December, the HPI found a median of $232,000.

From Black Knight’s analysis, it appears most U.S. cities saw their biggest price spike last year, and their dramatic price increases have begun to slow to a more balanced level.

Florida, however, seems to buck that trend a bit, with home prices still climbing faster in comparison to other U.S. states and cities.

According to Black Knight, Florida prices rose 0.6 percent month-to-month in December, coming in second to top-ranking New York with a 0.7 percent rise.

However, Florida cities logged eight of the top 10 spots for “Biggest Movers” when comparing metro areas. Only two other U.S. cities even made the list.

Biggest metro area movers month-to-month

1. Miami: 1.2% month-to-month December price increase
2. Sarasota: 0.9%
3. Key West: 0.7%
4. Fort Walton Beach: 0.6%
5. Poughkeepsie, NY: 0.6%
6. Lakeland: 0.6%
7. Port St. Lucie: 0.6%
8. Tulsa, OK: 0.5%
9. Naples: 0.5%
10. Palm Bay: 0.5%

To calculate its HPI, Black Knight says it looks at repeat sales prices and its loan-level databases. It claims the numbers take REO and short-sale price discounts into consideration.

© 2014 Florida Realtors®

Foreign Investment Growing in Tampa Bay Area

As development hot spots such as Miami overheat, market watchers say foreign investors are increasingly spending their yen, yuan and loonies in Tampa Bay — even as the source of their spending remains largely hidden from view.

"Tampa is becoming as popular as South Florida with foreign investors, and many of the same retailers and companies in both markets," David Sobelman, a managing partner of commercial real estate brokerage Calkain Cos., wrote last year in a report to investors. Tampa Bay, he added, is arising "as a more slow and steady alternative to the rest of the state."

The Sunshine State's reputation as bait for foreign spenders and snowbirds is legendary. One in four foreign buyers of American homes, townhomes or condos last year chose Florida, spending more than $6 billion, Realtors' data show.

About $370 million of that was spent in Tampa Bay, mostly from buyers in Canada, France and the United Kingdom. And to win over foreign buyers, who almost always pay in cash, Realtors here have done everything from hosting social outings for Russian prospects to chartering tour buses for Chinese buyers hoping to scout out suburban homes.

Source "Foreign real estate investors funnel millions toward Tampa Bay as South Florida market overheats," Tampa Bay Times, (February 21, 2014)

Is Sub-prime Lending Making a Comeback?

Lenders are returning to the sub-prime market – although still at only a fraction of what sub-prime lending was before the mortgage crisis, BusinessWeek reports.

Some sub-prime lenders that collapsed during the financial crisis are coming back into business with new non-prime loan offerings.

“There needs to be a solution for people who don’t fit in the box, and rebuilding non-prime lending is it,” says Bill Dallas, with his new venture NewLeaf Lending in Calabasas, Calif., which will begin issuing non-prime loans. However, he says this time around tougher lending rules will require borrowers in some cases to put up to 30 percent down as well as require more careful documentation of borrowers' incomes, credit, and work history.

About $3 billion of sub-prime mortgages were issued during the first nine months of 2013, according to Inside Mortgage Finance. In 2005, sub-prime originations totaled $625 billion.

Sub-prime loans – mostly targeted to those with credit scores below 660 – took a lot of blame in the financial crisis. Lenders sold high-risk products to investors with adjustable-rate mortgage products that had interest rates that could triple after two years, in some cases. Also, many of the loans had required little documentation about the borrowers' income and assets. The loans were blamed for sparking a huge wave of defaulting borrowers.

Since then, federal regulators have restricted many high-risk mortgage products. Lenders are also requiring higher credit scores and greater documentation of a borrowers' financial situation.

Source: "Subprime Mortgages' Modest Comeback," BusinessWeek (Feb. 20, 2014)

Modest Housing Gains Prediction for 2014

The national average of appreciation in home values expected for this year is 4 percent to 4.5 percent compared with a gain of more than 11 percent in 2013, according to a recent Kiplinger Letter forecast. The slowdown in housing gains expected is due to rising mortgage rate expectations and fewer investors offering all-cash deals as bargain home prices fade away, the letter states.

"More moderate growth this year is not necessarily bad news, it signals a more sustainable, long-term growth trajectory that will help quell fears that another bubble is arising," says Gillian White, Kiplinger Letter's associate editor. "Rising rates will also be helpful in some cases, cooling overly hot markets, where cheap rates and high demand sparked outsized price spikes."

Kiplinger forecasters predict new housing starts will top just over 1 million in 2014 – the first time since 2007. Also, sales of new homes are expected to grow by 16 percent this year. What's more, the for-sale inventory of existing homes will rise as more home owners see equity again and show more willingness to sell.

Also, while affordability is declining, it will still be better than historical standards of a median-price home costing 20 percent of household income, the Kiplinger letter notes. In 2013, it took 15 percent of income to buy an equivalent home. With mortgage rates expected to rise to 5 percent this year, Kiplinger forecasters predict it will cost the average household 17 percent of their income in 2014 to purchase a median-price home.

Source: "Housing Gains Predicted for the Year," RISMedia (Feb. 23, 2014)

Record-Breaking Profit for Fannie Mae

Fannie Mae generated a record high in profits in 2013, earning enough in profits to push its total payments to the federal government higher than the amount it received in the 2008 bailout.

The mortgage giant earned a record high of $84 billion in profit in 2013. The fourth quarter marked its eighth consecutive profitable quarter. 

The earnings mean that Fannie Mae alone with Freddie Mac, which also received taxpayer bailout money, will have poured in $192.4 billion to the government – more than the $189.5 billion they actually received in government support.

Fannie Mae’s profits alone were nearly five times as great as they were in 2012, which also at the time had been a record year. Rising home prices and falling default rates are helping to boost the mortgage giants' profitability. 

"The payment does not wipe out their draws on the Treasury, however, or remove them from conservatorship," The New York Times reports. "There is no mechanism for the companies to pay back their debt, but in return for the bailout the government has claimed all of their profits."

Regardless of the mortgage giants' jump to profitability, lawmakers still want to change the nation's housing finance system.

“Today’s move is largely symbolic but it doesn’t change the underlying dynamic,” Julia Gordon, the director of housing finance and policy at the Center for American Progress, told The New York Times. “It may be a profitable company but it is not a viable company, nor is it a company that is investing in its own future.”

Source: "Fannie Mae Posts Profit that Sets a Record," The New York Times (Feb. 21, 2014)

Green Homes Are Tops With Home Owners

How satisfied are home owners who bought a green-certified home? A recent survey finds that the majority love their homes and would even buy another green home in the future.

According the report from GuildQuality, a customer surveying company for residential real estate, 94 percent of home owners who purchased a National Green Building Standard (NGBS) certified green home built within the past three years said they would recommend a green home to a friend, and 92 percent said they'd go green again in their next home purchase. Home owners were most satisfied with their low utility bills, energy efficiency, and better insulation, according to the survey.

The report, which was commissioned by the National Association of Home Builders, also found that 71 percent of respondents believe that green homes are, overall, of higher quality, and 90 percent were satisfied knowing they "did the right thing" in buying a green home.

"Historically, studies have focused on interest in green among buyers in the market or on trends as reported by industry professionals," said Matt Belcher, Co-Chair of NAHB's Energy & Green Building Subcommittee and a builder from Wildwood, Mo. "While that's certainly important information for all those in the industry, it doesn't always get to the heart of what new buyers want to know, which is: 'How satisfied are green homeowners with their decision?' This data provides groundbreaking information that can be of value to the general public as well as the industry."

Source: "National Green Building Standard Certified Homes Report on Survey Responses," GuildQuality

Florida Housing Market Continues to Rise

Florida’s housing market reported more closed sales, higher median prices, more new listings, fewer days on the market and the continued stabilization of inventory in January, according to the latest housing data released by Florida Realtors®. Closed sales of single-family homes statewide totaled 15,000 last month, up 10.2 percent over the January 2013 figure.

“Price increases are continuing to improve home equity in areas across the state, and combined with still-low interest rates, it’s creating a great opportunity for sellers,” says 2014 Florida Realtors President Sherri Meadows, CEO and team leader, Keller Williams, with market centers in Gainesville, Ocala and the Villages. “We’re seeing homeowners ready to take that next step and list their properties for sale: Statewide, new listings for single-family homes in January rose 13.8 percent year-over-year, while new townhouse-condo listings rose 7.4 percent.

“And here at the start of a new year, January marked 26 consecutive months that we’ve seen increases in statewide median sales prices for both single family homes and town home-condo properties, year-over-year.”

Read more at Florida Realtors

Home Buying Costs Going Up

RealtyTrac recently released a housing affordability analysis showing that estimated monthly house payment for a median-priced three-bedroom home purchased in the fourth quarter of 2013. The estimate includes all potential costs of ownership – mortgage, insurance, taxes, maintenance – minus the estimated tax benefit.

Overall, RealtyTrac says the cost of homeownership rose 21 percent year-to-year in the 325 U.S. counties included in the analysis.

Most of the increase comes from higher home values and higher mortgage interest rates – an average 10 percent rise in median prices combined with a 33 percent increase in the average interest rate for a 30-year fixed rate mortgage as reported by Freddie Mac.

“A potent combination of rapidly rising home prices and the often-overlooked but significant uptick in interest rates in the second half of 2013 caused the monthly cost of owning a home using traditional financing to jump substantially in many markets over the last year,” says Daren Blomquist, vice president at RealtyTrac.

“The monthly cost of owning a home is still less than renting in the majority of markets, but the cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes, driven not by shoddy underwriting practices this time around but by investors and other cash buyers who are not tethered to the typical affordability constraints,” Blomquist adds.

Despite the increase in costs to buy with financing, the analysis shows that the estimated monthly house payment for a median-priced three bedroom home in the fourth quarter of 2013 was lower than average fair market rent for a three bedroom home – set by the U.S. Department of Housing and Urban Development for 2014 – in 91 percent of the counties analyzed (296 out of 325).

Among the 15 most populated counties analyzed, the estimated monthly house payment increased an average of 34 percent from a year ago, making the house payments higher than the average fair market rent for a three-bedroom home in six of those 15 largest counties.

Read more at Florida Realtors®

The Future Looks Good for Florida

Jobs, wages and real estate prices will keep climbing this year in South Florida, as will government, corporate and consumer spending, a global investment strategist said last month.

“Things are moving in the right direction, and the probabilities suggest that they’re going to continue to do so,” Richard Golod said.

Golod, director of global investment strategies for Invesco, spoke to about 250 members and guests of the Executives Association of Fort Lauderdale. He presented the keynote address at the business group’s annual economic forecast breakfast at the Marriott Harbor Beach Resort.

This winter’s spike in extreme weather in many parts of the country will likely affect investment markets in the short-term, Golod said. Overall, his outlook was optimistic, especially for U.S. markets, less so for European ones; he cautioned against investing in emerging markets.

Real estate will continue to be the biggest driver of South Florida’s economy, Golod said. He noted that 63 percent of South Florida’s single-family home sales in December were all-cash deals, mainly investments from European, Asian, South American and other international buyers.

© 2014 The Miami Herald, Evan S. Benn

Sarasota Quay Developer Needs More Time

GreenPointe Holdings LLC, a Jacksonville company is looking to revive a long dormant plan for a major hotel and condominium development at the former Sarasota Quay, but it is looking for the city to give it more time.

The plan will contain hundreds of condos, a hotel, restaurants, offices and retail space on the very valuable 14-acre waterfront property, was approved by the city back in 2007.

But it has been delayed for years as the land changed hands during the Great Recession, and the development agreement with the city will expire in 2017.

Although GreenPointe Holdings is contracted to buy the land and build on it, the project itself is not close to getting started. Therefore, the company is asking the city to change the zoning code to extend the life of the development agreement.

Source: "Potential Quay Developer Seeks Extension," Sarasota Herald-Tribune, (February 16, 2014)

Investors Back In the Game? - They Never Really Left It

Many housing experts have predicted a slowdown in investor activity this year, but investors don’t appear to be fading away from the market. They might just be shifting their focus to different types of properties, as distressed inventories dry up in many markets.

“There has been a clear rebound in investor participation in the housing market,” says Thomas Popik, research director for the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which showed strong activity among investors in December 2013. “The statistics for the housing market, particularly the non-distressed segment, remain generally strong, but investors still are increasing their activity.”

Investors are increasingly targeting non-distressed properties.

In November, investors accounted for 13.2 percent of purchases of non-distressed properties based on a three-month moving average. That's up from 10.5 percent in August, marking a seven-month market share high for investors, according to the HousingPulse survey.

Investors had started pulling away from the market in March 2013 as home prices soared, with their overall market share dropping to 16 percent, according to a survey by the National Association of REALTORS®. But by December, they bounced back, ending the year strong with a 21 percent market share — about the same level at which investors’ presence peaked during the foreclosure crisis.

Source: “Investors Ended 2013 on a Roll,” RISMedia (Feb. 17, 2014)

Jumbo Loans Boost Luxury Housing

Jumbo mortgages are providing the housing market recovery with a boost, according to industry experts. Buyers looking at luxury properties currently can obtain jumbo mortgages with interest rates that are on par with – and sometimes even lower than – conventional loans.

Moreover, the new qualified mortgage regulations (QM) don’t apply to jumbos, which makes them a more flexible option for buyers who want things like interest-only loans or who have a high net worth but complicated finances.

Jumbo mortgages can make sense for financing a home purchase even when buyers have enough cash, says Denise Andres, a real estate agent with ERA Landmark in Bozeman, Mt., who recently helped a client who downsized with a jumbo loan rather than pay all cash. “His thought was, with the gains in the stock market, why would I want to pay all cash if I can get 30-year money so low?” she says.

Jumbos are luring more buyers into “move-up” purchases, and this, in turn, is freeing up inventory at the lower end of the market.

Source: Reuters (02/11/14) Pinkster, Beth