Monday, January 29, 2007

Weekly Market Activity Report

Weekly Market Activity Report
Total housing inventory is growing steadily as we approach the busy spring market, but it is growing at a slower pace than previous years. There are currently 25,259 homes for sale in the Twin Cities, just 17 percent above the same time in 2006. That year-to-year active listing comparison has been steadily and significantly dropping since summer 2006 as new listing activity slows.

For the week ending January 20, new listings on the market were 5 percent ahead of the same time in 2006, while newly signed purchase agreements (pending sales) were 14 percent behind. Buyer activity remains low despite low-interest rates and improved affordability conditions, but our market is laying important foundations for future growth.

National Home Sales Projection for 2007

WASHINGTON, D.C.- Existing-home sales are expected to rise gradually in 2007 from current levels, with annual totals comparable to 2006, while new-home sales will continue to slide, according to the latest forecast by the National Association of Realtors®.

David Lereah, NAR’s chief economist, said there are mixed conditions around the United States. “Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year,” he said. “Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards.”

“Buyers, especially first-time buyers, with the combined benefits of seller flexibility and an unexpected drop in mortgage interest rates, have a window of opportunity. These conditions will persist in many areas until early spring when inventory supplies are likely to become more balanced,” Lereah said.

Existing-home sales, finishing the third-best year on record, are projected for 2006 at 6.47 million, a decline of 8.6 percent. In 2007, they’re expected to rise steadily from the current cyclical low and reach an annual total of 6.40 million, which would be 1.0 percent lower than this year’s total.

“By the fourth quarter of 2007, existing-home sales will be 4.6 percent higher than the current quarter,” Lereah said.

New-home sales in 2006 are expected to fall 17.7 percent to 1.06 million, the fourth highest total on record, before sliding an additional 9.4 percent in 2007 to 957,000. Much of the contraction in the new housing market results from cuts in builder construction to support pricing for current inventories. In addition, high construction costs in many areas are minimizing potential profits.

Total housing starts for 2006 are likely to drop 12.3 percent to 1.82 million units, with another 15.1 percent decline in 2007 to 1.54 million.

The 30-year fixed-rate mortgage is forecast to gradually increase to 6.7 percent by the fourth quarter of 2007. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.11 percent.

The national median existing-home price for all of 2006 is projected to rise 1.4 percent to $222,600, with another 1.0 percent gain next year to $224,700. The median new-home price should ease by 0.5 percent to $239,700 this year, then rise by 0.8 percent in 2007 to $241,700.

“Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year – prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market,” Lereah said. “This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains.”

The unemployment rate is expected to be 4.8 percent in 2007, after averaging an estimated 4.6 percent this year. Inflation, as measured by the Consumer Price Index, is forecast to be 3.4 percent for 2006 and 2.3 percent in 2007, while growth in the U.S. gross domestic product is likely to be 3.3 percent for all of this year and 2.3 percent in 2007. Inflation-adjusted disposable personal income is projected to grow 2.6 percent for 2006 and 3.5 percent next year.

Related Articles :

* Housing Bubble to Deflate For at Least Two More Years
There's a growing consensus among economic and financial experts on the rate at which the real estate bubble will deflate. It will be a slow leak, they say. But the reality is far more chilling. Last month, former Fed Chairman Alan Greenspan said, "The worst may well be over." But the "worst" is a frightening picture.
* Existing Home Sales Leveling But Still Down Significantly From 2005 Levels
Sales of existing homes held steady with a modest gain last month, another indicator that the housing market is transitioning into a more normal market in contrast with unsustainable activity last year, according to the National Association of Realtors. But sales were still 11.5% below the 2005 levels.
* Appreciation Slows To Lowest Level Since 1998
Freddie Mac announced that its quarterly national Conventional Mortgage Home Price Index rose just 4.0 percent in the third quarter 2006 on an annualized basis, down from a revised second quarter 2006 annualized rate of 5.2 percent. This growth rate in home values is the slowest growth rate since the second quarter of 1998.
* New Home Sales Rise 3.4 Percent
The U.S. Commerce Department reported that sales of newly built, single-family homes rose 3.4 percent to a seasonally adjusted annual rate of 1.05 million units in November. Sales also were revised upward for the three previous months.
* Existing Home Sales Creep Up - Prices Fall
According to the latest data from the National Association of Realtors, existing-home sales continued to recover last following the trend started in October. However, home values continued to fall and were 3.1% lower than the same time one year earlier.
* Pending Home Sales Holding But Still Off From One Year Earlier
A stabilization trend in the housing market is likely to continue, according to the latest reading on pending home sales published by the National Association of Realtors. However, the same report also shows that the index is still 11.4 percent lower than just one year earlier.
* Gradual Rise Projected for Home Sales
After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turnaround by summer, according to the latest forecast by the National Association of Realtors.
* Broker To Increase Business By Attracting Young Buyers
Edina Realty President Bob Peltier recently announced ambitious plans to tap into the growing pool of 20- and 30-something homebuyers by beefing up the company's Web site, hiring younger sales agents and redirecting its ad dollars to non-traditional venues.

Monday, January 22, 2007

Short-term pain, long-term gain (continued)

Short-term pain, long-term gain (continued)
During the early 2000s, conditions were characterized
by skyrocketing consumer demand due to low interest
rates, demographic changes and the relative weakness
of the stock market as an investment vehicle. The
supply of homes available for sale struggled to keep
up with demand. As a result, home prices escalated
dramatically–from a median of $152,000 in 2000 to
$228,900 in 2005, a jump of 50 percent.
While the spending capabilities of Twin Cities
consumers did increase in the same time period
thanks to the aforementioned low interest rates and
a slow rise in wages, they didn’t keep pace with home
prices (Figure 2).
This is a chief cause for the current slowdown in
sales. Consumers will only spend what they are able
for goods and services, and housing is no exception.
The buying environment must become more
hospitable for consumers to return en masse. That will only
occur on a meaningful scale if there is a pause in home price
growth.
Thanks to the housing slowdown, that is exactly what’s
happening. After reaching the lowest point in the last two
decades in July 2006, affordability conditions have rebounded
since July to the highest point in 18 months (Figures 3 &
4) thanks to falling interest rates and a pause in home price
increases. This makes homeownership more likely and desirable
for fi rst-time home buyers—a necessity for future growth
because an accessible market is a growing market.Keeping Perspective
It’s important to remember that there is ample business
opportunity for REALTORS® no matter the market conditions.
What we’re currently experiencing may seem challenging if
viewed through the rose-colored glasses of the early 2000s. But
it pales in comparison to the near-lethal cocktail of high-interest
rates and stagfl ation of the early 1980s.
While a rapid return to boom-level sales is unrealistic, our
current buying conditions are incredibly favorable relative to
past history. 2006 was a sea change for our market, and as
the waves settle in 2007 and the market pause improves these
conditions even further, the stage will be set for a healthy
future.

Reprinted from the January/February issue of The REALTOR®. Copyright © 2007 by the Minneapolis Area Association of REALTORS®.

Short-term pain, long-term gain

Short-term pain, long-term gain
A prognostication for the Twin Cities 2007 real estate market
No matter what hysterics may grip public dialogue on the
issue, a bubble is not bursting in the Twin Cities residential
real estate market. Buyers aren’t gone and the sky isn’t falling.
Despite the slowdown, 2006 was still one of the best years in
history for home sales and 2007 will be just as active.
But it is important to understand that a quick and easy rebound
is not in the cards. We will continue to experience the necessary
and healthy growing pains of a changing market. In the end,
we’ll all benefi t in the future from the happenings of the
present.
2006—Taking a Needed Breather
2006 was the year of the steady descent back to reasonable
expectations after several frenzied years of activity. Consumers
remembered that housing is a long-term investment. And they
remembered that fi nding a buyer is a little harder than placing a
“for sale” sign on the front lawn, but instead requires the skill,
experience and compassion of a professional.
As 2006 progressed, the market shifted further in the buyer’s
favor as they remained on the sidelines despite improving
affordability conditions. The year saw approximately 51,500
pending sales and 48,000 closed sales–down 19 and 22 percent
from 2005, respectively (Figure 1).
Conversely, 2006 saw a record high for seller activity. New
listings fi nished near 108,000—up 9 percent from the previous
record set in 2005.
The year started off
very strong, with new
listings per month
going as high as 31
percent above their
2005 counterparts.
As new construction
slowed and builders
began to sell off their
excess inventory,
listings leveled off in
the latter part of the
year, but still easily set a
new record.All that supply colliding with low demand meant the buyer had
relatively more control over the process. Home price growth
has been on the decline since the beginning of the year as
buyers recognize their relative advantage, with recent months
even posting small depreciation comparing 2006 to 2005.
2007—A Light at the End of the Tunnel
We are clearly in the midst of a downturn, but consternation
persists regarding when we’ll fi nally see a rebound. 2007 will
indeed be the year that the bounce back begins, but not right
away. Our market still faces some complex issues. Affordability.
Foreclosures. Overleveraged consumer debt. The “buy forward”
effect. These byproducts of the boom years will prevent a
quick bounce back and require some patience from armchair
economists.
The fi rst half of 2007 should see an extension of current
conditions before buyers begin to reawaken later in the year.
The rebound will be gradual enough, faint enough in its
inception and occur late enough in the year that the net sales
activity for 2007 will hold relatively stable with 2006. But the
seeds of recovery will be sown, and the market should show
solid buyer gains in 2008.
Greeting the Pause With Open Arms
Much has been said by policymakers, the media and the real
estate community about the slowing sales and price growth of
the Twin Cities housing market, much of which is reasonable,
valid and accurate.
But what few seem to be
talking about is perhaps the
most important and relevant
aspect of this whole recent
housing slowdown: The
decline is not only natural
and expected, but it’s exactly
what we need right now. Some
make the mistake of viewing
the temporary price pause
as a harbinger of doom, but
it is actually the very cure to
what ails our regional housing
market.

Monday, January 08, 2007

Market correction may have nearly run its course, but it's not full speed ahead

What's the shape of a post-bubble, post-correction real estate market? And more to the point: What does that mean for you in the new year?

Those questions are becoming increasingly relevant as the latest sales data show a small but unmistakable uptick in activity and declining unsold inventories. In late December, the National Association of Realtors reported that existing home resales were up by a hair in November -- 0.6 percent -- the second straight month of modest increases off the cyclical trough in September.

On Dec. 27 the Commerce Department reported sales of new houses rose 3.4 percent over the previous month, while builders' unsold inventories dropped to their lowest level since last February.

All of which suggests that the 18-month market correction that followed the four-year housing boom has just about run its course. From a national statistical perspective, we're somewhere near slack tide -- but no one's looking for another frothy high tide anytime soon.

Some local markets are moving contrary to the relatively flat national trend. Three dozen metropolitan areas -- primarily markets with moderate prices and solid employment growth -- were still racking up low double-digit house price inflation at the end of the third quarter of 2006, according to federal data. Dozens of others -- primarily where unemployment has been an economic drag -- showed continued signs of modest deflation in home values.

In the main, however, the housing market appears to have weathered the correction phase of the cycle without the blood running in the streets that some bubble-bust bears had forecast. Median prices of resale houses have fallen 3.6 percent nationally year-to-year, and anecdotal reports of 10 to 20 percent asking-price reductions in formerly hyperinflated markets are commonplace. But that's what corrections are all about, as opposed to outright busts.

Moderate price cuts also eventually stimulate buyers -- who'd been sitting on the sidelines wondering when the market might bottom out -- to wade back in and start shopping again. That's where we appear to be at the moment, and where we're headed in 2007, absent unexpected economic jolts to the global capital markets that could send mortgage rates spiking. In that event, all bets are off.

So what are smart strategies in a slowly recovering real estate environment for heads-up buyers and sellers? One good rule: Think baby steps instead of big leaps. Sellers shouldn't assume that with the trend line turning positive they can suddenly price their house for what they might have commanded in early 2005. Forget about it. In most places, buyers still have the upper hand. There's plenty of inventory to choose from, shoppers are picky, and unrealistic pricing is a guaranteed route to sitting dead in the water for months, unvisited and unsold. Be real on pricing. And be happy there are buyers out there again.

On the other hand, smart shoppers should recognize that the game is changing, the spring buying season is just on the horizon, and that lobbing low-ball offers at already marked-down properties isn't a winning strategy. If you are seriously in the market, be prepared to pay a price that might not be as low as you'd hoped, but that just might be your last shot at a particular house before it sells for closer to the asking price a few weeks from now.

Shoppers also need to understand that today's prevailing mortgage rates -- a little above 6 percent for 30-year money, and the high-5 percent range for 15-year loans -- are less than a point above 40-year lows. They won't be around indefinitely, so a fairly priced house combined with a near-historic low-cost mortgage adds up to a potentially great deal.

A second essential for the emerging market: Smart buyers and sellers need to be well-informed. They need to plug themselves into all the key local data that shape pricing and deal-making -- time-on-the-market, inventory declines and increases, the overall pace of sales, and the average gap between asking prices and closing prices. Be in command of these numbers and you will be well equipped to play heads-up ball, whether as buyer or seller.

A lot of this data is available online and offline from realty websites, regional or local multiple listing services, Realtor associations, and mortgage lenders and brokers. It's also available person-to-person from the front-line experts on any given micro-market: the realty agents who "farm" specific neighborhoods or market segments. They make their living, in up cycles and down cycles, by listing, selling and thoroughly knowing what's happening inside their target areas.

Early January indicates a potential uptick in 2007

The holiday vacation will soon be over for the Twin Cities housing market, as activity for the week ending December 30 took its usual final and definitive dip for the year. Compared to the same week in 2005, conditions look relatively similar. New listings are 2 percent higher, while newly signed purchase agreements (pending sales) are only 1 percent behind. In the past two weeks, pending sales have been below the previous year's activity by only single digits, unlike the double-digit declines of the past several months. Time will tell whether this trend continues, but conditions are certainly ripe for a return of buyers.