Norada Real Estate Investments

Why Housing Prices Are Essentially Meaningless

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It took the Wall Street Journal an entire survey to prove what readers of this column have known for months: The housing recovery, as it plays out, will be a localized event, varying greatly city to city, neighborhood to neighborhood, street to street.

The Journal, god bless them, compiled housing data to compare inventory changes, months supply, price drops, unemployment, and default rates across 28 US metro areas. Unsurprisingly, bubble markets like Las Vegas, Phoenix, and Miami look particularly horrid, whereas areas like Dallas (which avoided much of the housing mania) and cities like Charlotte and Seattle (which are just now seeing price declines accelerate) appear to be holding up rather nicely.

But drilling deeper into the raw data reveals a housing market that's deeply bifurcated, even within individual cities.

As low-end markets experience a sharp increase in buying activity due to supply shortages and vastly lower prices, illiquid high end markets are experiencing violent price swings — typically in the southward direction. This much is already known, and the Journal's study simply shows what we're told ad nauseam: is, in fact, local.

What's far more applicable to home buyers and sellers around the country, however, isn't what a few broad (yet important) data points show about what's happening in a few hundred neighborhoods all lumped together. Instead, it's where individual submarkets are headed. After all, owning a home is an investment in a neighborhood, a street, a community — not necessarily a metropolitan area at large.

Housing prices, by extension — when measured as broadly as a metro area — are basically meaningless.

[Read more…]

Commercial Real Estate – The Next Shoe to Drop

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I don't know if the real estate bubble is done popping. I suspect it is not.

If there is another shoe waiting to drop on the U.S. economy, its commercial real estate. Bloomberg reports that $165 billion in commercial real estate loans mature this year. They must be refinanced or sold. Either way, it seems like some losses must be taken.

As of July 8, 2009, $108 billion worth of properties were in default, foreclosure or bankruptcy. That's a lot. Throw in the 22-year high of vacant apartments, and you get a picture where landlords are really struggling.

Goldman Sachs took $700 million in losses from commercial real estate in the last quarter. And it did so without a hiccup. And we have the various government bailout programs to thank for that. Without the government sponsored ability to earn their way out of this mess, that $700 million could've been a much bigger deal.

The one hope regarding commercial real estate is that the problem is pretty well known. And so far, it's not moving the stock market.

Bloomberg threw out some big numbers for regional commercial real estate debt that was due in June. $463 million worth of office loans in Houston, $986 million in industrial mortgages in Portland, Oregon, $96 million in retail property in Orlando.

Was this debt paid? Was it refinanced? Is it in default? We don't yet know. And we won't know for up to 90 days, which is a typical grace period. It will be a while before we know whether these loans will become losses.

Total Housing Starts Dive 12.8% in April to Record Lows

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Housing starts dived downward in April, falling 12.8% compared to the previous month, to a new record low and a seasonally adjusted level of 458,000, according to data released today by the U.S. Census Bureau. On an annual basis, that qualifies as a 50.2% drop.

The drop was driven primarily by the volatile multifamily sector, where starts for buildings of five units and more dropped 42.2% to a seasonally adjusted pace of 78,000 last month. Starts for buildings with two to four units also declined 62.5% to a level of 12,000 units. Combined, the two represent a 46.1% reduction in multifamily activity last month, to 90,000 units.

“The market for multifamily homes is in a deep slump,” observed Patrick Newport, U.S. economist for IHS Global Insight. “Multifamily starts and permits both fell to all-time lows in April. The recent drops have been mind-blowing. Multifamily starts averaged 380,000 over the first half of 2008; in June 2008, they jumped to a 423,000 annual rate. They have dropped steadily since, and [last month] plummeted to 90,000 units. This sharp decline is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values.”

In contrast, single-family starts picked up 2.8% on a monthly basis to a seasonally adjusted level of 368,000 units. On an annual basis, that figure represents a 45.6% slide, but this second monthly increase for single-family starts appears to be generating optimism in some industry watchers.  Additionally, single-family permits showed a small gain in April, increasing 3.6% to a seasonally adjusted pace of 373,000 units. (That’s 42.3% below April 2008’s numbers.) [Read more…]

Top 10 Economic Predictions for 2009

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The U.S. and world economies are about to suffer through some of the worst recessions in the postwar period. Most measures of economic and financial activity look like they fell off a cliff in September and October, and have been deteriorating at an alarming rate ever since. The United States is now officially in a recession that started in December 2007. Japan and many European countries are in the same boat. At the same time, growth in most emerging markets is faltering. IHS Global Insight now believes that global growth will be in the 0.0 – 0.5% range during 2009, compared with 2.7% in 2008.

  1. THE U.S. RECESSION WILL BE ONE OF THE DEEPEST — IF NOT THE DEEPEST — IN THE POSTWAR PERIOD.
    The current downturn is well on its way to becoming the longest in the past six decades. Based on the December IHS Global Insight baseline forecast for the U.S. economy, it will be the fourth deepest in the postwar period (the 1957 recession was the deepest, followed by the contractions of 1973 – 75 and 1981– 82). Nevertheless, given the very negative tone of the incoming data (including the 533,000 drop in November payrolls), the recession could well be the worst in the postwar period. At the same time, the large back-to-back declines in real GDP predicted for the fourth quarter of 2008 and the first quarter of 2009 (down 5.0% and 3.8%, respectively) are the worst since the 1982 recession, and may easily be the worst in more than six decades. Overall, we expect the U.S. economy to shrink at least 1.8% in 2009.
  2. THE FEDERAL RESERVE AND OTHER CENTRAL BANKS WILL KEEP CUTTING RATES.
    The race to zero is on! The Fed has already cut the federal funds rate to 1% and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in “quantitative easing” (direct purchases of long-term Treasuries). It is already engaging (massively) in unorthodox measures such as buying commercial paper, mortgage-backed securities, credit card debt, and loans to small businesses, students, and car buyers. On December 4, the European Central bank joined the fray by cutting the overnight rate by 75 basis points (to 2.5%), while the Bank of England cut by 100 basis points (to 2.0%). IHS Global Insight now believes that the ECB and BoE will push rates all the way to 1.0% and 0.5%, respectively—and could cut all the way to zero. Most central banks around the world have followed suit. Notably, on November 26, the People’s Bank of China lowered rates by 108 basis points, the largest cut in 11 years and the fourth cut since mid-September.

    3. [Read more…]

National Real Estate Market Analysis

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eppraisal.com released their National Market Analysis Report for the three months ending August 2008. Of the 188 market areas tracked across the U.S., 43.6 percent show a decline in median home values, which is up from 32.4 percent from the previous three months. This ends the upward trend from the last three reports where the number of markets showing an increase in median home values was on the rise.

Most markets in the report are showing signs of leveling out or increasing values, with California being an exception. California again tops the bottom of the list with 27 of the 28 markets tracked by eppraisal.com showing declining median home values. Chico, CA is the only market that is showing signs of rebounding (see figure below). For this report Chico, CA, saw an increase of 1.70 percent to a median sales price of $245,000.

Six California markets saw double digit declines: Madera down 10 percent, Bakersfield down 10.7 percent, Riverside-San Bernardino down 11.1 percent, Modesto down 11.3 percent, Salinas down 14.3 percent, and Merced down 11.5 percent.

Markets in North Carolina, South Carolina, Ohio, and Oregon continue to gain in value and continue to show signs of a changing market. For example, the Raleigh-Cary, NC, Florence, SC, and the Dayton, OH, markets all saw median home value increases of over five percent. Raleigh-Cary, NC, increased by 8.1 percent to $200,000, Florence, SC, increased by 8.7 percent to $106,000, and Dayton, OH, increased by 10.6 percent to $110,000.

Texas continues to hold on to the postitive trend while Florida starts to dip back into negative waters. In the last report 11 of the 20 areas tracked in Florida by eppraisal.com showed positive increases in median values. This month the number of Florida markets showing increases in home values is down to six: Fort Walton Beach-Destin up 9.7 percent to $203,000, Palm Coast up 8 percent to $175,000, Panama City up 6.7 percent to $176,000, Palm Bay-Melbourne up 5.7 percent to $156,000, West Palm-Boca Raton up 5.6 percent to $285,000 and Jacksonville up 1.7 percent to $183,900. Texas shows the opposite with seven of the 11 areas tracked by eppraisal.com showing increases in median values. At the top of the list sits McAllen-Edinburg with an increase of 7 percent to $115,875, Waco with an increase of 6 percent to 119,621, and Midland with an increase of 4 percent to $172,500.

See the complete list »

Riding Out the Real Estate Market Crash

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Riding Out the Real Estate Market CrashReal estate has been regarded as one of the safest investments for quite some time.  However, despite the relative safety of real estate investments, there is always the possibility that the real estate market can fall just like any other investment.

Over the long term, real estate remains relatively safe simply due to the fact that the population of the world continues to increase while land is a limited resource.  When there is an occasional downturn in the real estate market, it is important to recognize certain strategies which can be used in order to keep a real estate investment from becoming a complete loss.

The first thought many people have when they realize the market has turned down is to attempt to sell the property as quickly as possible before the market gets worse.  In reality, most investors have found that it is often better if they can hold onto the property and ride out the market downturn.  While it is possible the market might dip lower before it rebounds, historically real estate markets always come back.

[Read more…]

The Future of the Housing Market

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The Future of the Housing MarketIn some of the worst housing markets in the country, deflation has reached double-digit proportions.  While housing woes have spread around the country, California appears to be poised to rank among the worse.  One of the primary reasons for this is the fact that in the last few quarters California has experienced the largest rate of deflating home prices.  In fact, home prices in California have fallen to levels that have been unprecedented.

Miami, Florida has also proven to be a difficult market at the moment.  The weak mortgage market and record high rates of foreclosures have led to declining home values as well.  In fact, Miami has been among the worst home markets in the country for two years running. The condo boom in Miami just a few years ago has further fueled the problems that have now spiraled into a massive real estate bust.

[Read more…]

Last Weeks Impact on the Housing Market

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If you stop and think about it, it was the housing market collapse that pulled these large financial institutions down over the last several weeks.

Fannie Mae and Freddie Mac owned or guaranteed one-half of the $12 Trillion mortgage market.  Lehman Brothers had over $60 Billion in mortgage related assets on its books.

This has all led to a credit bubble burst in the shadow of the housing “bubble”.  So what happens if credit tightens even more because money isn’t available to the financial system?  Simply put, we may see house prices fall even further in most parts of the country because those who want to buy won't be able to.

If the housing market doesn’t stabilize, then the financial market won't either.  Are we talking a year or two from now?  There is strong evidence that the worst hasn’t even happened yet – particularly in states like California and Florida.  You can expect to see banks taking back and unloading a lot of inventory over the next twelve months or more.

In the meantime, focus your real estate investing in markets that have strong economic fundamentals to maximize your short and long term appreciation and overall return on investment.

2007 Top 20 U.S. Tourism Destinations

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The 2007 annual ranking of the nation's leading tourism destinations compares domestic and international tourism spending, tourism job creation, and the degree to which each city's economic vitality is dependent upon visitors. The results show that a significant gain in international visitors propelled New York City to the top spot in 2007.

Rank City Rank change from 2006
1 New York City +2
2 Orlando -1
3 Las Vegas -1
4 Los Angeles 0
5 Chicago 0
6 San Francisco 0
7 Washington, D.C. +1
8 San Diego -1
9 Miami +3
10 Atlanta -1
11 Phoenix 0
12 Tampa -2
13 Dallas 0
14 Honolulu +1
15 Houston -1
16 Santa Ana +1
17 Boston -1
18 Seattle +2
19 Philadelphia -1
20 Virginia Beach +5

The U.S. City Tourism Impact, recently released by Global Insight, combines domestic and international travel volumes and spending data from D.K. Shifflet & Associates, as well as the U.S. Department of Commerce's Office of Travel and Tourism Industries with metropolitan area economic data and models from Global Insight to rank the most popular tourist destinations in the U.S.

Resales Up, Rates Down

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There are more signs of improvement in the real estate markets around the country.

Nationally, sales were up by 2% in May with the Midwest reporting a 5.5% increase and 6% in the Northeast. Condo sales also jumped up by 6% nationwide. Even some of the hardest hit markets showed increases including Sacramento, CA, Sarasota, FL and battle Creek, MI.

Mortgage rates took a welcomed dip recently reversing the upticks over the previous weeks. Thirty years fixed rate loans are back under 6.4% and fifteen year rates are under 6%.

It’s going to take more than lower interest rates and increased sales to help the housing market recover, but they are positive signs in the right direction. Along with increased prices in the hardest hit markets we should begin to see the beginning of a recovery.

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