CNNMoney writes that Omaha real estate appraiser John Bredemeyer claimed a few years ago he saw a house in his area sell for 8% less than comparable homes nearby, owing largely to the large, snarling dogs next door. “Raising kids there?” he says. “I don’t think so.”
So what’s your recourse? “You can move to the woods,” Borzotta says. “Or you can expect issues and learn how to deal with them properly.” See what CNNMoney suggests when facing intolerable neighbors.
Last week two Federal Reserve researchers answered that question with an analysis of returns on investment since 1926 and their findings won’t make the housing industry happy.
If a home is purchased only as an investment and not as a place to live, a comparison of average annual returns clearly shows that though most homeowners make a positive return, investing in equities offers favorable returns more often than investing in housing. That’s the bottom line from Ellyn Terry and Jessica Dill, two economists at the Atlanta Federal Reserve, in a working paper published June 12.
The two researchers set out to answer the questions: With average returns so close to zero, just how often has the housing market produced losers? And how does investing in housing compare to investing in equities? They did not look at the “buy and hold” strategies popular among investors seeking cash flow from rents, but only at appreciation.
They computed the average annual return of home prices across all possible combinations of start and stop points using the Shiller house price series from 1926 to 2012. The distribution depicts returns concentrated around zero with some skewness to the right. Eighty percent of all start-stop point observations experience some degree of positive return.
To take into account the duration of ownership, they assumed that the average homeowner lives in his or her home for 13.3 years, based on analysis by Paul Emrath at the National Association of Home Builders. They found the average annual returns for an asset held for a period of 13 or more years is substantially less volatile than for an asset held for fewer than 13 years, and those investing for the longer term were much more likely to have positive returns.
“We compute that 40 percent of homes owned for less than 13 years have negative average annual returns, compared to 12 percent of homes owned for 13 years or more. Interestingly, while a much greater portion of those owning for 13 or more years obtain positive returns, the average annual return was actually slightly higher for those owning fewer than 13 years (0.95 percent versus 1.03 percent),” they found.
They applied weights for average length of ownership. Using the weights, we recomputed average annual returns across all possible combinations of start and stop points for average length of ownership. The distribution continues to show that returns are concentrated around zero with skewness to the right; two-thirds of all investors in this distribution experience some degree of positive return.
Is Investing in Housing a Losing Proposition? | RealEstateEconomyWatch.com.
Home repossessions in the U.S. jumped 11 percent in May after declining for the previous five months as rising prices and limited inventory for sale across the country spurred banks to complete foreclosures.
Lenders took back 38,946 homes, up from 34,997 in April, according to Irvine, California-based data firm RealtyTrac, which tracks notices of default, auction and seizures. Thirty-three states had increases in the number of homes repossessed, RealtyTrac said in a report today.
Banks are more willing to move to the final stage of foreclosure because there is sufficient demand and prices are improving, said Eric Workman of Tinley Park, Illinois-based Mack Cos., which aggregates single-family rental homes and resells them to individuals and institutional investors. U.S. home prices advanced almost 11 percent in the year through March, the biggest 12-month gain since April 2006, according to the S&P/Case-Shiller index of values in 20 cities.
“For a very long period of time, the market in general and specifically banks were unsure of what these assets were valued at,” Workman, vice president of sales and marketing at Mack, said in a telephone interview. “With increasing stability of the economy and housing prices throughout the U.S., these banks and sellers are getting much more comfortable with the value of their properties.”
Private-equity firms, hedge funds and individuals are all buying foreclosed or distressed homes to turn into rental properties as prices remain 28 percent below their 2006 peak. Companies including Blackstone Group LP (BX), which has invested more than $5 billion to buy almost 30,000 homes, and Colony American Homes Inc., which owns more than 12,000 properties, are helping to increase prices in areas hit hard by the real estate crash by draining the market of inventory as low mortgage rates and improving employment fuel demand from buyers.
“There are plenty of companies out there that will buy assets throughout the range of condition because the demand for finished quality inventory is so high,” Workman said.
Metropolitan areas that experienced the brunt of the housing bust and the most foreclosures have experienced some of the biggest rebounds. Median home prices in Phoenix soared 21 percent in May from a year earlier to $175,236, followed by Tampa, Florida, which was up 20 percent to $118,000; Riverside-San Bernardino, California, up 18 percent to $220,000; and Miami, up 16 percent to $160,000, according to RealtyTrac.
Foreclosures Jump as Banks Bet on Rising U.S. Home Prices – Bloomberg.
Real estate investors are responding to higher prices by buying fewer properties in the next 12 months and holding their rental properties at least five years or longer, according to a national survey of real estate investors conducted by ORC International for MemphisInvest.com and Premier Property Management Group.
Investor purchasing intentions have changed significantly since ORC surveyed investors in August, when only 30 percent said they planned to buy fewer properties in the next 12 months than they did in the previous year. In the latest survey, the percentage of investors who said they plan to cut back on purchases in the coming year has risen to 48 percent. Only 20 percent of investors said they plan to increase purchases compared to 39 percent ten months ago.
While they may be buying fewer new properties in the year to come, over half of investors who own rental properties plan to hold them for at least five years or more. One-third, 33 percent, of investors plan to keep them for 10 years or more.
“Higher prices are reducing returns on investment and investors are responding by cutting back on their purchasing plans until conditions sort out. Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good ideals on distress sales,” said Chris Clothier, partner in MemphisInvest.com and Premier Property Management Group.
“On the other hand, investors are planning to hold onto their rental properties for at least eight to ten years and realize the benefits of rising rents and low vacancy rates. Cash flow is much more important than appreciation,” said Clothier.
Real estate investors play a major role in the national housing economy. Investors purchased 24 percent of all existing homes sold in 2012, a decline from 27 percent in 2011, according to the National Association of Realtors. The drop in purchasing intentions could result in a further decline in investor market share in 2013.
Single-family rentals are the fastest growing component of households, expanding over 25 percent since the 2005 peak in homeownership, according to Zelman & Associates. The number of renter-occupied singe family detached homes is about 11.4 million, almost 2.1 million (or 22 percent) higher than in 2006, according to the Census Bureau.
How those who do plan to make purchases will pay for them has also changed over the past ten months. In August, nearly one out of four investors said they will use all cash on their next purchase and the balance would use some form of financing. Today the percentage has increased to 37 percent. Most investors today plan to use a commercial mortgage.
“Cash sales make sense when prices are rising. They lower investors’ costs,” said Clothier.
About half of investors said real estate investing is harder today than when large numbers of foreclosures started five years ago. The entry of institutional investors into residential real estate is often cited as a source of competition for properties and a reason foreclosure inventories are shrinking, but only 13 percent of investors in the survey said the large competitors have impacted their businesses while 54 percent said they have experienced no impact at all.
However, more than half of the investors participating in the survey said they believe that five years from now there will more real estate investors than there are today.
“The reasons people invest in real estate-cash flow, passive income for retirement, exceptional return–will be as important five years from now as they are today,” Clothier said.
The study was conducted using ORC International’s CARAVAN Omnibus survey using both landline and mobile telephones on May 2-5/9-12/16-19 2013 among 3020 adults, 1,507 men and 1,513 women 18 years of age and older, living in the continental United States. Some 1,970 interviews were from the landline sample and 1,050 interviews from the cell phone sample.
Investors Plan to Reduce Purchases | RealEstateEconomyWatch.com.
Foreclosure and bank owned sales fell 18% in the first quarter to 190,121, according to RealtyTrac’s latest report. This is down 22% from Q1 2012.
Foreclosure and short sales accounted for 21% of all residential sales in Q1, down form 25% in Q1 2012, and a peak of 45% in Q1 2009.
Meanwhile, non-foreclosure short sales were down 10% from Q4 2012, and down 35% from Q1 2012.
Including non-foreclosure short sales, the share of distressed sales came to 36%.
The decline in foreclosure related sales is in large part because of a decline in foreclosure activity. But the decline in non-foreclosure short sales was “surprising” according to RaltyTrac vice president Daren Blomquist, given that 11 million homeowners are in negative equity.
“Rising home prices in many markets are stunting the continued growth of short sales by reducing incentive for both underwater homeowners and lenders.
“Underwater homeowners may be willing to stick it out a few more months or even years in the hope that they will be able to walk away with money at the closing table and without a hit to their credit rating, and for lenders a failed short sale may no longer translate into bigger losses down the road given that average prices of bank-owned homes are rising — at a faster pace than non-distressed home prices in many markets.”
Here are some details from the report:
Here’s a look at foreclosure sales against average foreclosure sale price:
U.S. single-family home prices rose in March, racking up their best annual gain in nearly seven years in a further sign that the strengthening housing recovery is providing a source of support for the economy, a closely watched survey showed on Tuesday.
The S&P/Case Shiller composite index of 20 metropolitan areas gained 1.1 percent in March on a seasonally adjusted basis, topping economists’ forecasts for a 1 percent rise.
Prices in the 20 cities jumped 10.9 percent year over year, beating expectations for 10.2 percent. This was the biggest increase since April 2006, just before prices peaked in the summer of that year.
All 20 cities covered by the index saw yearly gains for the third month in a row. Average prices in March were back at their late-2003 levels.
Prices in Phoenix continued their sharp ascent, rising 22.5 percent from a year earlier. Other standouts included San Francisco, up 22.2 percent, and hard-hit Las Vegas, up 20.6 percent.
The housing market turned a corner in 2012, several years after its far-reaching collapse. The recovery has picked up since as inventory tightened, foreclosures eased and historically low mortgage rates have attracted buyers.
For the first quarter of this year, the seasonally adjusted national index rose 3.9 percent, stronger than the 2.4 percent gain of the final quarter of last year.
The data provoked little reaction in financial markets. Wall Street was poised to open higher as comments from central banks around the world reassured investors that supportive monetary policies would remain in place.
Home price rise sets seven-year record in March: S&P | Reuters.
For nearly two months, through the heart of the spring buying season, the Institute for Luxury Home Marketing’s Market Action Index has stayed stuck at 29, one point below the official level designating a seller’s market.
Meanwhile lower priced homes have risen. The national median price on Realtor.com for all price tiers is up 2.63 percent in April over March and other listing-based market reports registered similar gains as slim inventories and a robust buying season combined to fuel the recovery. While the average price for ILHM’s market profile has risen to $1,266,086 through May 16, it’s only 1.6 percent above the ILHM average at the end of March.
Compared to lower price tiers, luxury demand is much weaker. Inventories in ILHM’s profile have increased 7.3 percent since the end of March, typical for this time of year and in line with monthly increases in the overall national inventory. However, time on market, which measures the balance between supply and demand, has been stuck on neutral like ILHM’s market index. The average days on market for luxury homes is 184 days, unchanged in six weeks. The median age of inventory on Realtor.com, however, was 81 days at the end of April, down 2.41 percent from March.
However, in the hottest markets in the nation, luxury sales have been doing as well as lower priced homes. In Denver, one of the best markets in the nation for all price tiers, luxury home sales skyrocketed in April, with sales of homes priced at $1 million or more rising almost 142 percent from April 2012, according to independent broker Gary Bauer. For luxury homes priced at $1 million or more, there were 87 single-family home sales in April, a 141.7 percent jump from the 36 in April 2012, according to the report based on Metrolist data.
Luxury home values increased in San Francisco, Los Angeles and San Diego in the first quarter of 2013 compared to a year ago, according to the First Republic Prestige Home Index by First Republic Bank. San Francisco Bay Area values jumped 8.7 percent from the first quarter of 2012 and 3.2 percent from the fourth quarter of 2012. The average luxury home in San Francisco is $2.82 million. Los Angeles area values rose 7.1 percent from the first quarter a year ago and 1.9 percent from the fourth quarter of 2012. The average luxury home in Los Angeles is $2.1 million.
RealEstateEconomyWatch.com » Luxury Prices Lag Lower Price Tiers » Print.
A year and a half into his first term as North Castle Town Supervisor and Howard Arden is already planning to run for re-election.
He said he will run whether or not he is endorsed by the town’s Republican Committee—which is likely to endorse its candidates sometime soon.
“Since taking office a year and a half ago, I have taken North Castle in a new direction,” Arden said in an interview with The Armonk Daily Voice.
“As promised, I converted our town to a council-administrator form of government. I have used best business practices and technology to run our town more efficiently; carefully tracked expenses while taking every opportunity to increase revenue,” he added.
Arden is confident, if re-elected, that his approach will continue to pay off for North Castle—literally.
“My efforts have produced the lowest tax increase of any town in Westchester; and has allowed us to use our savings for significant town-wide upgrades in equipment, infrastructure, park facilities and resident services,” he said.
Though North Castle has flourished financially under Arden, it is no secret the town board has become split on several topics. Issues such as CVS and a dog park coming to North Castle have become polarizing, controversial hot buttons of discussion—not only among residents, but also the town board.
It remains to be seen if such a dynamic on the town board will attempt to come back next November.
Incumbent council members Diane DiDonato-Roth and John Cronin, whose terms expire at the end of the year, have not decided whether they would seek re-election. The two Republicans are expected to make their decision within the next two weeks about whether to run for a second term.
No matter who ends up on the town board, Arden hopes he’s at the helm.
North Castle Supervisor Arden To Run For Re-Election In November | The Armonk Daily Voice.
Westchester residents can expect chaos on highways and rail lines for at least the next week as crews continue to repair damage caused by Friday evening’s train collision in Fairfield County, Connecticut Gov. Dannel Malloy said Sunday evening.
“There are going to be substantial delays until we get this line back in full service,” Malloy said in a press conference. “Residents should plan for a week’s worth of disruptions. The delays will not be limited to mass transit, as more people get behind the wheel to drive and make their own connections.”
Metro-North warned customers that travel times will be significantly longer and trains will be crowded Monday. Customers should stagger their work schedule or seek alternative means of travel to get to work, Metro-North said.
About 30,000 train commuters are affected by the break in train travel in the Bridgeport-Fairfield area, Malloy said. Those commuters are expected to hit train stations in lower Fairfield County or Westchester County or to travel via Interstate 95 and the parkways to get to work or elsewhere Monday morning.
Connecticut will have 150 buses on the highways as train shuttles, in addition to the normal rush-hour traffic. Malloy also noted that the weather is expected to be wet Monday morning, causing more potential problems.
“If all of those were to get on the highway in single-occupancy cars, we will literally have a parking lot,” Malloy said.
Westchester May See Traffic, Transit Delays After Metro-North Crash | The Bedford Daily Voice.