Norada Real Estate Investments

Housing: Is It Becoming a Seller's Market?

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The National Association of Realtors said on Thursday what home buyers and real estate investors in many parts of the United States have known for months: it’s becoming a seller’s market.

The number of homes listed for sale in January fell by 4.9%, leaving 1.74 million properties on the market. That’s the lowest since December of 1999, when there were 1.71 million homes on the market. By contrast, there were 2.91 million homes on the market two years ago at this time.

After adjusting for seasonal factors, home sales rose by just 0.4% in January, to an annual rate of 4.92 million units. Still, that’s up from 9.1% one year ago.

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National Economic Outlook (February 2013)

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Home construction rarely matches the actual demand for new homes, which can change quickly – there's often too much or too little. Because the US population grows one percent per year about 1.5 million new homes are needed every year. During the boom of the mid-2000s, two million homes were built per year; at the bottom of the bust, that number was 600,000.

In 2012, construction was up to 800,000 homes. This is a clear indicator that demand is even higher and will continue higher for years. Home prices will be rising even when more construction takes place. The economic effect is self-reinforcing because most of the cost of building a new home is in the wages paid to the workers, who in turn can afford a better home for themselves or spend money on cars and other stuff.

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National Economic Outlook (December 2012)

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It's becoming clear to me that what we've been thinking of as a stage in the recovery actually is the recovery. Job growth at a 1.5 percent annual rate is well below our hopes from previous cycles but its getting hard to imagine faster growth unless the government starts spending more money (ha-ha) or consumers like their finances enough to start clamoring for new homes.

In November, jobs increased by 1.4 percent from last year and unemployment eased to 7.7 percent, basically no change from what we've seen the last six months. Jobs were up 1.4 percent in manufacturing, 1.5 percent in retail trade, 3 percent in business services, 2.2 percent in health care, and 2.7 percent at restaurants. Jobs in government and construction were flat.

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65% of Housing Markets Worse Than Four Years Ago

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Sixty-five percent of U.S. housing markets are worse off today than they were four years ago according to the California-based real estate research firm RealtyTrac.

The results of the survey arrive the same day as the final presidential debate and just weeks before the general election.

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National Economic Outlook (October 2012)

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Unemployment in September fell to 7.8% (according to government stats) but otherwise the economic situation was pretty much as it has been for the last six months: improving but at a slow rate.  Employment was up 1.4% over last year, with health care and business services providing the bulk of new jobs, as usual.

Some interesting developments: jobs in car manufacture were up 7% as car sales increase 9%; jobs in truck transport were up 4%, signaling that companies are confident enough to increase inventories; the hemorrhaging of teaching jobs has finally stopped; restaurant jobs were up 3%; and jobs in real estate and construction edged upward after years of contraction.

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Is the Fed’s QE3 Good for the Housing Market?

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Last week, the Federal Reserve announced a new round of “quantitative easing,” or QE3, meaning the Federal Reserve will  fire up the printing presses to buy $40 billion worth of  mortgage-backed securities (MBS) every month on an open-ended basis in an effort to further drive down historically low interest rates.

Federal Reserve Chairman Ben Bernanke said QE3 should put downward pressure on mortgage rates, helping the housing market.  By lowering borrowing costs and spurring  banks to lend more, the Fed hopes to induce more spending and eventually set  the stage for more hiring.  The Fed tied its bond-purchase program explicitly to jobs, saying it will keep buying bonds until it sees a substantial improvement  in the labor market.

Who benefits from QE3?

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National Economic Outlook (September 2012)

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Let's do the jobs math. In August, as in the preceding months, the number of jobs was 1.4 percent higher than last year. We're probably stuck at this growth rate which translates to 1.8 million new jobs per year.

Unemployment is at 8 percent but it rarely gets below 5 percent, so the “excess” unemployment is about 4 million. At 1.8 million per year it would take just a couple of years to put those 4 million back to work, but new people enter the workforce every day so it will probably take twice as long.

What will accelerate the recovery is construction, which has been below replacement levels as we coped with an excess 4 million homes built during the boom. We've almost absorbed that excess and there will soon be unmet demand in many local markets; home prices have bottomed out in half of the 315 markets we cover. Other construction will also increase as state and local governments spend on delayed infrastructure projects.

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Just How Cheap is US Housing?

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Consider Minneapolis, Minn.  You could’ve bought, out of foreclosure, a three-bedroom, two-bath house of 1,356 square feet on a quarter acre lot for about $29,000. It needed a lot of work, but houses in the neighborhood recently sold for $75,000.

Your mortgage would be under $100 per month and about the same in taxes. You could’ve got $1,000 in rent. Even if you had to put $40,000 in the house, your gross yield (cap rate) would’ve been 17.4% on the property.

This is one example sleuthed by my friend Gary Gibson. “The house had mold damage and needed a lot of work,” he wrote. “Beautiful yard, however.”

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National Economic Outlook (July 2012)

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Why has this economic recovery been so sluggish? In a normal recovery, job growth would be accelerating at this point, rather than dragging along at the same modest level month after month.

One culprit, off course, is the housing boom that left many homeowners with more debt than their home is worth. Another is the federal government that bailed out the big banks feeding the boom and had no money left to encourage job creation. And a third culprit is local governments that added a million jobs during the property-tax boom rather than banking the money and have now had to shed 500,000 of them.

In short, its the boom, stupid!

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