#2014realestateforecast

[philadelphiarealestate]

Lively Spring Season Ahead for Real Estate Sales

MRIS, a Mid-Atlantic Multiple Listing Service (MLS), recently released the results from its 2014 Spring Real Estate Outlook Survey. Over 71% of MRIS real estate professionals are more optimistic about the upcoming real estate season compared to last year and predicted transactions would increase this year from 2013. Additionally, 82% of respondents think the average home sales price will increase in this year’s spring market. “As we saw the Mid-Atlantic housing market stabilize in 2013 from the housing recovery, we can expect to see inventory growth with prices stabilizing in this year’s spring market,” says MRIS Vice President of Product Innovation and Marketing, Andrew Strauch. “MRIS real estate professionals are on the frontlines of the housing market and have their hand on the pulse of the upcoming selling season.” The survey also looked at the homebuyer and seller challenges, inventory and new mortgage rules. 45% of MRIS real estate professionals predict that 2014 will continue to be a seller’s market, while 33% indicated a buyer’s market for this year and 22 percent are unsure. According to the survey, other challenges that buyers and sellers will face this spring season include: • Approximately 53% of respondents think that an insufficient supply of homes on the market is one of the biggest challenges that buyers face right now. • 50% of those surveyed feel buyers were concerned with competition from other buyers – 48% noted low affordability. • Over half of the respondents believe that the biggest challenge that sellers are facing right now is pricing their home properly. 37% of respondents believe that inventory will increase compared to last year and just slightly less (32%) indicated inventory will be about the same as last year. Only 22% of real estate professionals predict that inventory will meet the demand they expect for 2014. In early January, new mortgage rules issued by the Consumer Financial Protection Bureau went into effect, designed to lower the risk of defaults and foreclosures among borrowers. As a part of the rules, lenders must determine that a borrower has the income and assets to afford to make payments during the life of the loan. The majority of real estate agents in the Mid-Atlantic believe that these new rules will affect homebuyers: • 44% of real estate professionals believe the new mortgage rules will be better for the real estate industry and approximately 32% are still unsure of the impact on this year’s spring market. • Approximately 70% responded that the new mortgage rules would reduce the number of people who qualify for a mortgage. • Real estate agents are split on the effect the mortgage rules could have on final sales price with approximately 39% who predict it will lead to a lower final sales price and 33% who do not think the new mortgage rules will lead to a lower sales price.

[philadelphiarealestate]

Normal Market Activity Inches Forward

The Advanced March NAHB/First American Leading Markets (LMI) Index remained unchanged in March at .87 from February but the number of markets considered at or above their last normal period increased from 58 to 59 markets from February to March and from 47 to 59 year-over-year. In addition, the number of markets doing better than the national market rose from 147 markets to 152 markets month-over-month. The index is calculated for 351 markets or metropolitan statistical areas as defined by the federal government. The LMI measures proximity to a normal market by comparing the last 12 months of activity in three areas to the last time these indicators were on a normal or sustainable path. The three local indicators are single-family permits, home prices and employment levels. The previous 12 months is compared to the annual average from 2000-2003 for permits and prices and to 2007 for employment levels. Each is calculated as a ratio and averaged for the overall market indicator. Values above one indicate collective activity is above the last period of normalcy. The index calculation for March is an advanced estimate because the employment estimates for each market were not available so the February levels were used along with more recent estimates for permits and prices. As a result, the component employment index for each market did not change. On a national scale, the permit component did not change but was up for 100 markets, down in 113 and the same in 138 markets. While the national index value did not change, 32% of the markets did see an index increase from February to March and 84% increased year-over-year. The gradual but persistent increase in the number of markets improving and moving beyond the last normal period is further indication of the slow but steady process of resolving the economic and housing problems that developed and worsened during the Great Recession but are gradually moving aside for growth.

[philadelphiarealestate]

Modest Gains Likely This Year

While the housing market has clearly come a long way since the depths of the recession, there’s still a long way to go before the industry returns to normal. Indeed, it’s unlikely that measures of housing activity will return to the peaks seen before the bubble burst in 2007, and in many cases it would be undesirable. But key gauges of housing health, such as housing starts and new-home sales plus mortgage delinquencies, are still struggling to recover to levels that preceded the big run-up in the middle of the 2000s decade. New-home inventory and new-home sales, remain more than 40% below 1998-2002 levels. They are more than 60% below their peaks. In addition, the 1.07 million new homes expected to be started in 2014 is more than 30% below the typical prebubble pace of 1.5 million - the 2005 peak topped 2 million. Building is picking up and will gain further after the first quarter of this year, but the unusually harsh winter is temporarily dampening activity in many parts of the country. Builders are eager to cash in on strong buyer demand, driven higher by inventory constrained by the construction drought that lasted from 2008 through 2012. Annual housing starts will grow by 15% this year, passing the 1 million mark for the first time since 2007. Similarly, the number of delinquent mortgages remains a problem. Though the share of mortgages in trouble is 32% below peak levels, it remains 35% above the 1998-2002 “norm.” It’ll be a few more years before more homeowners are able to get current on loans, as deals are worked out with banks, or foreclosures and short sales fully work their way through the market. The good news is that the average annual gain in home value and sales of existing homes are closer to hitting the mark. This year, we expect home value to appreciate by an average of 4% to 4.5% nationwide - a significant cooling from 2013, when home prices climbed an average of more than 11%. Rising mortgage rates will temper demand and there’ll be fewer investors bringing all-cash offers to the table, as bargain prices and rock-bottom interest rates fade away. For the market as a whole, the slowing growth is positive, alleviating concerns about the prospect of a new housing bubble in hot markets and implying a more stable, sustainable period of growth ahead. Steady gains in home values will also help bring sales of existing homes to normal levels, as they lift more homeowners out of underwater mortgages, encouraging them to sell. Indeed, sales of existing homes will grow by about 4% this year, with around 5.3 million homes sold in 2014. That’s within spitting distance of the pace of about 5.34 million that was considered normal during the pre-boom-and-bust period, but a long way off from the more than 7 million homes sold during the height of the bubble. The higher home prices in combination with increased mortgage rates mean that affordability is creeping back toward more normal levels. Historically, a median-price home would cost about 20% of household income. In 2013, it only took about 15%. As rates on 30-year mortgages rise to 5% in 2014, it will take closer to 17% of household income to purchase a median-price home. While that means fewer would-be buyers will be able to purchase homes, it also indicates the extremes of the market are disappearing. The continued recovery of the housing industry is clearly good news for overall economic growth. This year, we expect housing and related industries to contribute about 0.5 percentage point to GDP growth — around 0.4 percentage point from residential building and realtor commissions and 0.1 percentage point from home furnishing sales, landscaping and other industries closely tied to housing. That’s 0.1 percentage point above the normal contribution from housing. Kiplinger

[philadelphiarealestate]

Winter Weather is Not Slowing Down Home Buyers

House-hunters keep hearing that inventory is tight. They're keeping a weather eye on interest rates and they're enduring this patience-trying, when-will-it-end winter. As 2014's first ice storm hit, the 30-year fixed mortgage rate dropped to 4.0%, the lowest in several weeks. Such intrepid seekers are ready to sit at the settlement table, observers of the local real estate market said. Since this time last year, for-sale inventory in the Philadelphia region has dropped about 8% while prices have ticked upward. The median price of a house has increased 1.3% from $159,000 to $159,900. Inventory is low because many potential sellers are waiting before they put their homes on the market, thinking they will get higher prices for them. Philadelphia Inquirer

[philadelphiarealestate]

A Letter from BHHS Fox & Roach CEO, Larry Flick

“For the past two years everyone in our company has been busy…very busy. This follows several slow years, so the change of pace is most welcome! We are all familiar with the story of the real estate boom of the mid-2000’s, when the market drove a record number of home sales and unsustainable double-digit price appreciation. Then came the 2008—2011 bust when home prices and sales fell and our nation floundered in recession. As 2012 arrived it was clear a recovery was in progress. It seemed as if overnight we were propelled into another, though smaller, real estate boom. Residential real estate sales rose 15% in 2012 and another 15% in 2013. But since June 2013 the rate of sales increases has slowed from its 2012 pace. Is this something we should be concerned about? Not at all! It’s just been a while since we’ve had the steady activity of a normal market. One could say that the new normal is…normal. We all know of someone who experienced a major life event during the recession. In less stressful economic times their circumstances would have prompted them to buy a new home. But the uncertainty of the downturn caused them to take a step back to wait for better times. This dynamic resulted in a high level of pent-up demand. Then as the economy improved many people felt more secure in their jobs. Real estate values had also stabilized, and they realized their wait to buy a new home was over. They bought houses…a lot of houses. Now after two years of brisk activity much of this pent-up demand is satisfied. What remains is the normal market with normal activity that we see today.And that’s not bad…it’s just different from what we’ve grown accustomed to in recent years. A lack of good housing inventory is also contributing to this slower pace. In the past two years many houses that were on the market sold quickly and there haven’t been sufficient new listings to replace them. I frequently hear from our sales associates that many of their clients are ready to buy, but they are waiting for the right home to come on the market. They want their purchase to be a long-term investment, so they’re selecting homes they feel are properly priced and in excellent condition. Houses that show well and are priced right are selling quickly—in fact it’s not unusual for these sellers to receive multiple offers. The exception to this is in the higher price range of $1 million and above, where supply exceeds demand. This demand for inventory is why home sellers are benefitting from the current market, especially if they must sell a home in order to buy a new one. Competitively-priced houses that show well are selling quickly, and we’ve had multiple offers on quite a few of them. To be successful at selling your house, here’s what you need to know: When you are considering a list price for your home, don’t place too much weight on the Case Shiller Housing Price Index that is reported often in the press. The cities used in their housing price index are in the most severely affected markets—the ones that lost the most value—and many are now rising with double-digit appreciation. Our market did not suffer such declines and so appreciation here has been much more moderate and steady at 3% to 4% a year. That said, there are some pockets in our market where appreciation has been higher, some where prices are even, and others where prices are still down a bit. In this last real estate boom, and in the continuing normal market, consumers’ expectations have changed because the reality of the market has changed. There is no more aspirational buying, or buying to sell for quick profit. Consumers now look at their home as a long-term investment, one that will need to meet their needs for many years to come. They expect houses to be in move-in condition. The only way for sellers to compensate for outdated floor plans and styles, even if the home is in excellent condition, is by adjusting the price. Are you still waiting in the wings or waiting for the right house to come on the market? You will get the best price and lowest interest rates now. As the economy improves two things will happen: housing prices and interest rates will rise. The Federal Reserve has started to pull back on its policies of stimulating the economy by keeping interest rates artificially low. We are already beginning to see interest rates drift higher. To prevent a recurrence of the mortgage lending problems that led to the real estate bust, legislation known as Dodd-Frank enacted new rules that took effect at the beginning of 2014. There is plenty of mortgage money available for qualified buyers, but the additional steps Dodd-Frank requires will make obtaining a mortgage commitment a lengthier process. So it is especially important to be prequalified for a mortgage at the start of your home search, and to allow sufficient time from purchase to closing. Though these new regulations make getting a mortgage a bit more complicated, it’s important to remember that they are here to protect you and every consumer. The market has changed direction. But that’s no reason to be concerned. Rather, take advantage of this terrific moment in time and make your move while the market remains so favorable.”

[philadelphiarealestate]

Real Estate: Look for Value in 2014

According to Money Magazine, the good news for housing is that price gains next year are expected to be only about half as strong as in 2013, when sellers stayed on the sidelines.  Inventory is already improving: nationwide, the number of homes for sale in September rose 1.8% vs. a year earlier, according to the National Association of Realtors.  That's the first increase since late 2011.

Buyers will also enjoy an advantage next year as real estate investors are expected to be less of a factor, because in an improving market, there are fewer distressed homes, which they want.  For buyers, more inventory can make sense if you have a particular home in mind.  But in 2014, there will be a price for delay: 30-year fixed-rate mortgages are forecast to climb from 4.5% to more than 5%.  Lead with a credible offer - at a time of multiple bids, low-balling isn't the way to go, but you don't want to overpay either.  Even in markets that are starting to experience bidding wars, final sales prices are still typically about 1% below asking.

For owners, if you like your home and are not in a rush to sell, you have great flexibility.  For instance, your rising home equity will make it easier to borrow against the property. That can help pay for maintenance or home renovations you've been wanting to do for years, which will only add value when you eventually put your home on the market.  Take advantage of low home-equity rates. While 30-year mortgages rose nearly a point this year, rates on home-equity lines of credit have fallen a bit to 5.1%.  If you'll need to repay your loan over many years though, go with a fixed-rate home-equity loan. Today's 6.25% average is about 0.25 points lower than a year ago, as lenders are now more interested in doing deals.

For sellers, if you list too early you’ll leave gains on the table, but wait too long and rising borrowing costs might put an end to bidding wars.  You can't time the market perfectly, but you can keep an eye on inventory trends.  Once you see a big uptick in listings relative to closings, you'll know price gains are getting ready to slow, and that it's time to act.  Price it right the first time. Don't waste your time by listing too high only to have to wait and lower the price.

(Money Magazine)

[philadelphiarealestate]

Latest Mortgage Applications Data

Mortgage applications for both home purchase and refinances rose slightly in the past week. From one year ago, applications for home purchase are down by 10% while applications for refinances are lower by an astounding 68%. Refinance activity is already touching a decade low and is likely to fall even further next year as mortgage rates increase.

Mortgage rates will go from a 4% average in 2013 to about a 5% average in 2014, based on NAR projections.

Home buying has been completed not only using mortgages but also via all-cash. The cash transactions fortunately have been about one-third of the market in the current environment of extra underwriting stringency.

Going into 2014, lenders will lend more focus to home purchase applications since refi business will undoubtedly collapse. Banks have huge cash reserves. Mortgage default rates among recent home buyers of the past 3 years have been at historic lows. Market incentives are clearly there for more lending for home purchases.

The one big unknown is coming from Washington in terms of new mortgage regulations and of the increased lawsuit risks from any small deviation from government directives. A right balance should be pursued to assure consumer protection and rein in the excesses of private sector risk taking. However, too much regulation and too many lawsuits also carry the risk of lessening lending.

(Lawrence Yun, NAR Chief Economist)

[philadelphiarealestate]

2014: The Emerging Purchase Market

Freddie Mac recently released its U.S. Economic and Housing Market Outlook for November, showing that the major shift for the coming year will be a transition from a refinance-dominated mortgage market to the first purchase-dominated market the industry has seen since 2000. Interest rates are expected to rise gradually throughout 2014 with the 30-year fixed-rate mortgage ending the year near 5% with affordability still strong in most markets.  Projecting housing starts to rise to a 1.15 million pace in 2014, which should help to create around 700,000 new jobs and quicken the pace of economic growth.  Gains in home sales will be limited by continuing tight inventory in many markets, but anticipate sales to rise about 5-6% in 2014 from 2013 levels. Expect home values to continue rising but at a more moderate pace, around 5-6% annualized, and expect multifamily property investments to continue to be relatively attractive as we enter 2014, based on the Freddie Mac Multifamily Investment Index. "With the close of 2013 will also come a major transition in the housing finance industry,” says Frank Nothaft, Freddie Mac vice president and chief economist. “For the first time since 2000, we're going to see the mortgage market dominated by purchase activity as the refinance share drops below 50%, and with mortgage rates rising, we're also going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels."

(RISMedia)