Daily Archives: June 5, 2013

Home prices surge despite sluggish wage growth | North Salem Real Estate

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As the economic recovery has sputtered along in recent years, those looking for signs of progress have focused intensely on two metrics: the unemployment rate and housing prices.

Much of the investor optimism about the economy is now being fueled by various measurements showing housing prices surging across the country. Just this week CoreLogic, one of several real estate data providers that tracks home prices around the country, reported that prices rose 12.1 percent in April compared to the period a year ago.

The Triangle market, while not experiencing double-digit growth, is also seeing solid appreciation, according to CoreLogic. Home prices, including distressed sales, increased 4.4 percent in the Raleigh-Cary market in April while Durham-Chapel Hill market increased 5.3 percent.

It can be tantalizing to view these numbers as having the finality of a company’s stock price, with sellers assuming they will now be able to get X percent more for their home.

But, in the same way that a lower unemployment rate doesn’t necessary mean an unemployed person’s job prospects have improved, the reality is more complicated.

 

Read more here: http://www.newsobserver.com/2013/06/05/2941459/real-deals-home-prices-surge-despite.html#storylink=cpy

 

 

Real Deals: Home prices surge despite sluggish wage growth | Real Deals | NewsObserver.com.

Will higher mortgage rates kill the housing market? Maybe not! | Mount Kisco Real Estate

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Home prices have been soaring over the past year, the sharpest gains in seven years; construction activity is picking up nicely. Both trends have been driven in no small part by a steady drop in home mortgage interest rates, which have made homeownership too good a deal to pass up for millions of Americans.

But the trend on rates has reversed abruptly in the past few weeks. This chart shows the average rate on a 30-year fixed-rate mortgage since the start of 2011; the spike on the right shows an increase from 3.4 percent to 4.1 percent since May 1.

Source: Bloomberg/BankRate

Source: Bloomberg/BankRate

So what will become of our precious and long-awaited housing boom? Is it a fragile, delicate flower about to be crushed by the boot of higher rates? Or is the housing recovery now resilient enough that there’s no need to fear? Economists at Goldman Sachs have run some numbers through their models of how the housing market works and have come up with some promising answers.

Source: Goldman SachsThe Goldman economists, Hui Shan and Marty Young, start with an analysis built on home affordability. Take the median household income in the United States ($50,000), assume a buyer has a 20 percent down payment and that they can only afford debt payments equal to 25 percent of their income. This chart shows how much house they can afford at any given mortgage rate:

Source: Goldman Sachs

It also shows an initial reason for some optimism. At a 30-year fixed-rate mortgage rate of about 3.8 percent, the typical American homebuyer can afford a $279,000 house. That’s 45 percent more than the current price of houses. That suggests that affordability isn’t the thing holding Americans back from buying houses (instead, it may be such factors as tight credit standards, difficulty building up a down payment  or lack of confidence in future job prospects). It also implies that slight increases in the mortgage rate shouldn’t completely undermine the improvement in the housing market; the thing to watch is not rates per se, but what happens on those other factors that are drags on would-be homeowners.

And that bodes particularly well:  As we wrote last week, the rise in rates over the past month appears to be driven primarily by improving economic prospects. If that’s the case, even as homes become a bit more expensive, they will be doing so at the same time those other restraining factors dissipate. So rising mortgage rates, if they’re rising for good reasons, could actually be net positives for the housing market if they result from more people having jobs and being confident in their prospects.

 

Will higher mortgage rates kill the housing market? Maybe not!.

How Rising Mortgage Rates Could Affect The Housing Recovery | Cross River Real Estate

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Mortgage interest rates are rising. In the week ending May 30, the 30-year fixed rate mortgage clocked 3.81%, its highest level in a year, according to Freddie Mac. That’s 15% higher than the 3.31% record low set in November of 2012 and almost 14% higher than the 3.35% rate logged in the beginning of May. The 15-year fixed rate jumped as well to 2.98%.

The increase from the start of May through the month’s final week translates into an extra $20 per month for every $100,000 of debt accrued. If rates continue their upward march, mortgages will become more expensive.

Since cheap financing has been a notable driver of the housing recovery, could those rising rates derail the momentum? To answer that question, let’s first take a look at what low interest rates have done for housing and why they’re increasing now.

Compared to decades past, today’s rates (even at 3.81%) are unprecedentedly — and artificially — low.  They’re the direct result of a Federal Reserve-funded fiscal stimulus plan, better known as the third round of quantitative easing or QE3, aimed at hastening the recovery in housing and the economy as a whole. Through the program the Fed has been buying $85 billion worth of Treasury bonds and mortgage-backed securities per month, a process that has tamped down interest rates, making mortgages more attractive to prospective consumers.

The low rates have enabled qualified home buyers (and owners looking to refinance) to access cheap financing, adding to already-record-high levels of home affordability. It’s helped bolster a surge in both home sales and price increases (since lower rates help make larger principals possible).

Rates are climbing now due to both stronger economic data and to speculation: recently Fed chairman Ben Bernanke suggested that the central bank may start slowing its bond buying within the next several months. The news has caused bond investors to begin selling out of their 10-year Treasury positions, driving yields for these bonds above 2%. Since mortgage rates correlate closely with Treasury yields, they have followed suit, rising about a quarter of a percentage point in just a week.

 

How Rising Mortgage Rates Could Affect The Housing Recovery – Forbes.

Robust growth seen to prop up real estate | Bedford Hills Real Estate

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FORECAST ROBUST growth within the Association of Southeast Asian Nations (ASEAN) is expected to prop up the real estate sector on the back of strong domestic demand, according to a report from consulting firm Jones Lang LaSalle released yesterday.

In particular, growth will be experienced in the office, industrial and logistics and retail spaces.

“This growth translates to robust domestic investment into commercial property, driving demand for office and logistics space.

“Increased consumer spending will boost demand for expanded retail formats, which in turn will support the developments of retail malls and the subsequent accompanying infrastructure in emerging markets,” said Chris Fossick, managing director of Jones Lang LaSalle Singapore and Southeast Asia.

Add to the upbeat outlook is the “increased transparency in the real estate market” in ASEAN economies, or proper disclosure of costs and transactions involved in property ownership.

The consulting firm said in its recent transparency report that six ASEAN countries saw improved scores last year, namely, Singapore, Malaysia, the Philippines, Indonesia, Thailand and Vietnam.

Meanwhile, Jones Lang LaSalle sees a growing labor market, more sophisticated needs and new markets as key opportunities for the property sector.

“While economic growth drives corporate activity across Southeast Asia, businesses are making changes to accommodate growing workforce and modernized office spaces in new, emerging markets,” the report said.

In particular, Jakarta, the Philippines and Thailand were cited to rising demand in office space.

It said the Philippines “often overlooked by investors, witnessed record levels in demand for office space, sparking new developments in previously unexplored sub markets and a 3% rise in rents from the same period 2012.”

Indonesia was noted to have more than doubled its office space demand in four years, while Thailand saw a recovery in its real estate market.

Jones Lang LaSalle said “demand for offices will spike and vacancy levels are forecasted to reach historic lows by 2014.”

The industrial and logistics market will also see growth “thanks to improvements in Southeast Asian economies and international trade, ASEAN industrial and logistics markets have reached historic highs and show no signs of slowing, as trade volumes are predicted to increase by 130%.”

“Real estate will have a critical role in driving trade and industrial growth,” the firm said. It added many markets have already experienced an increase in rates as most developers “will seek new markets.”

Further, the consulting firm noted that stronger consumer confidence is expected to drive the retail market.

Jones Lang LaSalle said Indonesia leads the region in retail market growth followed by Thailand.

“… (T)he retail industry is in a unique position to influence and be involved in many key aspects of development in the Southeast Asia region, both economic and social. There is a role for the industry in areas such as infrastructure, housing, education, health care, tourism and industry and trade which are all inextricably linked,” said Mr. Fossick.

 

Robust growth seen to prop up real estate | BusinessWorld Online.

Will the housing rebound crush the job market? | Pound Ridge Real Estate

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For the past few years, economists have been waiting for the housing market to rebound so the job market can finally — crash? Wait, no. It’s the opposite. Right?

On Friday, we’ll get the latest look at how the job market is doing. Hiring is improving, but the unemployment rate has stayed stubbornly high. The go-to explanation among economists has been the weak housing market. Where are all those construction workers going to find work? Nursing? (That’s actually a pretty good idea.)

Housing prices are jumping again, and some people are even saying there’s a new bubble. We’ve pointed out you shouldn’t expect the economy to come roaring back just because the housing market is. But two economists are taking an even more extreme stance: that a good real estate market, where more people buy houses instead of rent, will throw more people out of work.

The paper by David Blanchflower of Dartmouth and Andrew Oswald of the University of Warwick titled “Does High Home-ownership Impair the Labor Market?”, has been out for a month or so but was only published by the National Bureau of Economic Research on Monday. Among the findings:

States with more homeowners, fewer renters, tend to have higher unemployment rates.

It’s not the homeowners that tend to make up the majority of the unemployed.

So we really don’t know why this happens. But it does, so there.

Also, maybe homeowners are less likely to start new businesses, because property makes people lazy I guess.

That makes the study interesting for another reason. Not only are the authors saying the conventional wisdom of a weak housing market and a weak job market improving in tandem is wrong. But also the reason we say such things.

Most people believe the reason high homeownership in a housing bust creates stubbornly high unemployment is because the out of work can’t afford to sell their houses — they owe too much — and move to an area of the country where their job prospects are better.

But Blanchflower and Oswald insist it’s not the homeowners who are the unemployed, or at least the overwhelming majority of them. So the “trapped in a house” storyline doesn’t work for them. Instead, they say homeownership creates a sort of economic rigidity that hurts the job market for everyone, but they don’t say how.

Homeownership, though, was rising throughout the 2000s, and yet the unemployment rate dipped below 4% in the middle part of the decade. Would it have gone lower? It’s only recently that homeownership seems to be holding us back.

Another funny thing about the study is that one of the first economists that Blanchflower and Oswald thank in the beginning of their paper is Dean Baker, co-founder of the Center for Economic and Policy Research and a prominent liberal economist. It’s odd because Baker disagrees with Blanchflower and Oswald, which he says he told the two authors before they published the paper.

 

Will the housing rebound crush the job market? – The Term Sheet: Fortune’s deals blogTerm Sheet.