Daily Archives: May 11, 2013

Dallas-area builders worry that new-home prices are rising too fast | Armonk Real Estate

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Jumps in new home development and construction costs have builders worried that their sales prices are outpacing buyer incomes.
Dallas-Fort Worth new home prices in the first quarter hit a record high of $244,113, according to Dallas-based housing analyst Residential Strategies Inc.
And with costs such as building lots, lumber and labor rising rapidly, the outlook is for more price increases in new homes throughout 2013.
“Builders are reporting that they have increased housing prices $20,000 to $50,000 in some submarkets,” Residential Strategies principal Ted Wilson said Thursday morning at a seminar for local builders.
“They are raising prices not to make more money but to keep up with the pass-through price increases they are facing.”
Wilson said that lot prices in North Texas are up as much as 60 percent and lumber prices are 30 percent to 50 percent higher than a year ago.
If it wasn’t for the near-record low mortgage finance costs, many buyers couldn’t afford the housing being built in D-FW, he said.
“The homebuyer can now purchase almost 31 percent more house today than he could three years ago because of the drop in mortgage rates,” Wilson said. “The drop in the mortgage rate is helping to mask the inflation many homebuyers are now experiencing.”
More construction
Residential Strategies reports that first-quarter new home starts were up about 30 percent from the same period of 2012. The analyst is predicting that local builders will start between 20,000 and 21,000 homes in North Texas in 2013.
That’s still less than half the number of houses that builders constructed in the area in 2006.
“The housing recovery is in full bloom this spring,” Wilson said. “Starts are up 46 percent from the market bottom” in 2009.
The biggest rise in local home starts has been in houses priced above $300,000.
“The $300,000 to $500,000 category continues to see what we think is astounding growth,” said Residential Strategies’ Cassie Gibson. “Year-over-year growth was about 40 percent in this price range.”
These more expensive houses account for about 1 in 4 homes being built in North Texas, she said.
Under $200,000
Starts of homes under $200,000 have grown at less than half the rate of pricier properties. This price range once accounted for more than half of the D-FW starts each year, but it’s now down to about a third of total construction.
“Many submarkets are reaching historic highs in terms of the average and median home prices,” Gibson said. “The market will need help in the way of rising household income levels.
“There obviously is a ceiling to how high prices can rise, and in some areas the market may be close to reaching it,” she said.
Homebuilders worry about their ability to keep passing on cost increases to the consumer.
“It’s the biggest concern of all builders right now,” said Dustin Nelson, president of David Weekley Homes’ D-FW division. “I think when the lending market for residential developers opens up a little bit more, they won’t have to get the lot price increases they are asking today.

 

Dallas-area builders worry that new-home prices are rising too fast | Armonk Real Estate | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.

Another Housing Bubble Ahead? | South Salem Real Estate

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HOUSE PRICES in the US are heating up, as the flow of new homes and permits continue to steadily increase and the attraction of historically low mortgage rates motivates buyers, writes George Leong of Investment Contrarians.
The buyers that are driving up the housing market are not only the buyers of principal homes, but also the investors who are attracted to the relatively lower home prices and cheap financing.
What is interesting is that we are seeing major buying from not only the smaller investor who may dabble in an investment property, but also the large institutions and hedge funds that are getting into the swing of things, gobbling up hundreds and thousands of properties at lower prices.
The S&P/Case-Shiller index, comprising the 20 largest US metropolitan cites, increased a better-than-expected 9.3% in February, representing the 13th straight up month for prices.
While the housing market is far better than it was a few years ago, when the sub-prime mortgage crisis crushed the housing market and left a trail of destruction, my view is that there may be a bubble building as much of the current surge in prices is due to the cheap money.
Just consider the S&P/Case-Shiller index and notice the major jump in home prices in the housing market. For example, home buyers in the Phoenix housing market saw home prices surge 23% year-over-year, while those living in San Francisco reported an 18.9% surge in home prices.
My problem is that much of the buying in the housing market is being triggered by low-financing costs that can inevitably get homeowners in trouble once interest rates begin to ratchet higher—and they will go higher. For instance, carrying a $100,000 mortgage will become more expensive for many homeowners who were initially able to enter into the market only because of the low rates.
Even Robert Shiller, co-creator of the S&P/Case-Shiller index, is not that enthusiastic. He feels that the current housing climate is occurring in an “abnormal economy” that has been created by the money printing by the Federal Reserve. Shiller actually believes that home prices will do very little over the next decade. (Source: Napach, B., “Robert Shiller: Home Prices Will Remain Relatively Stagnant For Next 10 Years,” Yahoo! Finance, April 30, 2013.)
Years ago, after the last housing bubble, I said that if you have the money, go out and buy an investment property—you would be buying homes when they were cheap and, best of all, the money was cheap.
So as long as the Federal Reserve continues to pursue its bond-buying program and place downward pressure on financing rates, the housing market will continue to improve.

 

 

Another Housing Bubble Ahead? | South Salem Real Estate | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.

House Prices Rise in 89% of U.S. Cities as Recovery Gains | Katonah Real Estate

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Prices for single-family homes increased in 89 percent of U.S. cities in the first quarter as the housing market extends a recovery from a five-year slump.
The median sales price rose from a year earlier in 133 of 150 metropolitan areas measured, the National Association of Realtors said in a report today. A year earlier, 74 areas had gains.
Buyers returning to the housing market are bidding up prices for a tight supply of listings. The national median price for an existing single-family home was $176,600 in the first quarter, up 11.3 percent from the same period last year. That was the biggest gain since the fourth quarter of 2005, according to the Realtors group.
“Some of the previously hard-hit markets like Phoenix, Sacramento and Miami continue to experience a dramatic turnaround, while a new set of areas like Atlanta, Minneapolis and Seattle have begun to show strong signs of upward momentum,” Lawrence Yun, chief economist for the National Association of Realtors, said in the report.
At the end of the first quarter, 1.93 million previously owned homes were available for sale, 16.8 percent fewer than a year earlier, according to the Realtors group.
The best-performing metro areas were Akron, Ohio, and San Francisco, where prices jumped 33 percent from a year earlier. Prices rose 32 percent in Reno, Nevada, and Silicon Valley,California; 31 percent in Atlanta and 30 percent in Phoenix.

Biggest Declines

The Kankakee, Illinois, area had the biggest decline, falling 19 percent from a year earlier. Following were Edison, New Jersey, with a 8.6 percent drop, and Allentown, Pennsylvania, with a 8.3 percent decrease.
The housing recovery is strengthening as the job market improves and the Federal Reserve pushes down borrowing costs for mortgages to near record lows. The unemployment rate fell to a four-year low of 7.5 percent in April, according to Labor Department data, and the number of Americans filing claims for jobless benefits unexpectedly dropped last week to the lowest level in more than five years.

 

House Prices Rise in 89% of U.S. Cities as Recovery Gains | Katonah Real Estate | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.

New housing prices rose 0.1 per cent in March | Cross River Real Estate

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Statistics Canada says its price index for new houses rose 0.1 per cent in March, after a 0.2 per cent increase in February.
The agency says month-over-month gains in the index have ranged from 0.1 per cent to 0.3 per cent for the last 12 months.
For the second month in a row, the largest monthly advance occurred in Regina, where prices were up 0.7 per cent.
However, Calgary, where prices were up 0.3 per cent, was the top overall contributor to the March advance.
Prices also rose in Saskatoon, Windsor, Winnipeg, Hamilton and the combined metropolitan area of Toronto and Oshawa.
In March, prices decreased 0.2 per cent in Vancouver and were unchanged in nine of the 21 metropolitan regions surveyed.

 

New housing prices rose 0.1 per cent in March | Cross River Real Estate | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.

As Home Prices Rise, Consumer ‘Wealth Effect’ May Be Smaller | Mt Kisco Real Estate

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The “wealth effect” is a term coined by economists to describe consumers’ tendency to spend more when their wealth has increased. It spurred the U.S. economy forward for decades as the market value of homes rose. It was easy for Americans to take out new mortgages and pocket the proceeds for trips to the mall or a second car. The equity extracted through these mortgages, known as cash-out refinancings, rose from $26 billion in 2000 to $321 billion in 2006. Home-equity loans, which do not require a new mortgage, also fueled the frenzy. Economists figured that every dollar increase in housing wealth produced an extra 3¢ to 5¢ in spending.
Home prices are rising again, but the wealth effect “is much smaller,” says Amir Sufi, a professor of finance at the University of Chicago Booth School of Business. Sufi reckons that each dollar gain in housing wealth today may yield as little as 1¢ in extra spending. U.S. Department of Commerce data show that consumer spending has grown at a 2.1 percent annual rate since the recession’s end, down from a 3.2 percent average for the 20 years before the slump.
Consumers now see their homes less as a piggy bank to be tapped and more as a nest egg to be secured. More homeowners are paying down the principal and shortening the maturities of mortgages. Cash-in refinancings, in which borrowers invest more of their own money in the house, outnumbered cash-outs by more than 2 to 1 in the fourth quarter, according to Freddie Mac (FMCC).

 

 

As Home Prices Rise, Consumer ‘Wealth Effect’ May Be Smaller | Mt Kisco Real Estate | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.

Another Housing Bubble | North Salem Homes

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Data for the following charts is courtesy of Lender Processing Services (LPS), Specifically the LPS Home Price Index (HPI).
The charts were produced by Doug Short at Advisor Perspectives. Anecdotes on the charts in light blue are by me.

Background

The CPI does not track home prices per se, rather the CPI uses a concept called “Owners’ Equivalent Rent” (OER) as a proxy for home prices.

The BLS determines OER from a measure of actual rental prices and also by asking homeowners the question “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

OER Weighting in CPI

CPI categories
Mish Shedlock




OER is now at 24.041% of CPI, which still rounds to 24.0%, but the other housing wedge is now an even 17.0%, down from 17.1% in the previous version.

 

Another Housing Bubble | North Salem Homes | Bedford NY Real Estate | Robert Paul Talks Life in Bedford NY.