Though there is a huge amount of distractions from countries in turmoil all over the world, the economy continues to edge its way toward recovery and, as is noted in this update, we  are seeing more positive statements about real estate in the press than we did in the recent past. Since such assessments are usually a bit late, coming after the improvements have already started taking place, we can find reason to celebrate their existence. Not that they mean the problems still facing real estate--particularly real estate financing--have disappeared...but the real estate market seems at last to be gaining strength and learning to stand on its own legs.

It is well worth discussing with friends, clients and real estate professionals. Change is in the air, and it's not just the arrival of spring.

Written by Steve Peterson, Posted by Tim Lampe 

 

Weekly Commentary- March 2, 2011

 

If you are a collector of optimistic articles about the real estate market, you will want to seek out, in the February 27 Wall Street Journal, “Why 2011 May Be the End of the Housing Crash,” by economics journalist Simon Constable.

 

There are, he asserts, “economic signs a bottom is close.” At the top of the list is affordability. “Nationally,” he writes, following the findings of a Moody’s Analytics study, “the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years.” In times long past, the appropriate price for a single family residence was defined as 24 months of gross income for the buyer. We haven’t seen a figure like that in years, but we are indeed seeing it now. “In the end,” Simon argues, “it will be affordability that will drive people to buy homes.”

 

Simon also cites economists who believe real estate values will bottom this year, and notes that investors are anticipating a (probably lazy) run-up in real estate prices by buying up single-family residences, mainly in all-cash transactions. In Miami, he notes, more than half of all transactions were paid for entirely with cash last year, and the trend was evident in other parts of the nation.

 

Constable overlooks the likelihood that all-cash transactions are strong in today’s market in part because financing remains so tight, especially for non-cookie-cutter loans, like mortgages for non-owner occupants of homes. He also pays no attention to the fact that the magical combination of low asking prices, low interest rates and anxious sellers has been with us for some time and has offered little substantial support to a struggling real estate market.

 

What we find dismaying in most sunny analyses of the market is that they pay little attention to the importance of distress sales, difficult financing—and political disruptions all over the world. They also overlook the increasingly obvious fact that the mortgage industry will soon change dramatically.

 

When we look very closely at the data for real estate, we can see that the market is still improving—gradually—but we probably mislead ourselves if we expect a traditional recovery to break out like a sunny day in spring. It will continue to be a slow, uneven process.

 

That said, it is also true that the large number of investors in the market—including some who made fortunes when they placed their bets earlier on a housing bust—is extremely persuasive. They may very likely be correct. Now is the time to buy one or more of the remarkable bargains this market is still offering.

 

March 2, 2011

 

KEY INDICATORS [3/1/11]

 

Gold $1425.70/ounce [up!]

Crude Oil (Brent) $113.90/brl [up!]

U.S. Dollar to…

    Euro .7224 [down]

    Japanese Yen 81.91 [down]

    Chinese Yuan 6.5719 [up]

    Canadian Dollar 0.9738 [down]

6-mo Treasury Bill Yield 0.16%

10-yr Treasury Note Yield 3.45%

[6-month up 2 bps, 10-yr down 4 bps]

11th Dist Cost of Funds 1.484%[-]

30-yr Fixed-rate Mortgage 5.23%

15-yr Fixed-rate Mortgage 4.56%

1-yr ARM 3.72%

[HSH average includes jumbo rates: 30-yr down 9 bps; 15-yr down 8 bps; 1-yr ARM down 17 bps]

Freddie Mac weekly average rate

    4.95% [down 5 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 2/18

  Overall

    Up 13.2%; down 9.5%

the week prior

  Purchase Money Loans

    Up 5.1%; Down 5.9%

            the week prior

  Refinancing Loans

    Up 17.8%; Down 11.4%

the week prior

 

Jobless Claims 2/19

    391,000 – prior week 413,000 (rev) – Continuing claims down 145,000 to 3.790 million

 

New Home Sales Jan

    Down 12.6%

 

National Pending Homes Sales Index Down 2.8% Dec