Home Prices Are Up, Supply Is Down—Expect Bidding Wars

It’s getting more expensive to buy a house. Prices rose 6% in the fourth quarter of 2014 as buyers competed for fewer and fewer available homes for sale, according to new data from the National Association of Realtors®.

The NAR report shows most cities (86%) are experiencing rising prices, with fewer available homes to choose from. Just 24 cities, or 14%, recorded lower median prices in 2014 than in 2013.

“Home prices in metro areas throughout the country continue to show solid price growth, up 25% over the past three years on average,” said Lawrence Yun, chief economist at NAR. “This is good news for current homeowners but remains a challenge for buyers who are seeing home prices continue to outpace their wages.”

Still, as more jobs are created, consumer confidence rises, driving the demand for housing. But with fewer sellers putting their homes on the market, the housing market just chugs along.

“This should signal existing home owners, who may have been slow to think of selling, to consider now a great time to list,” said Jonathan Smoke, chief economist at realtor.com®. With prices rising by double digits in 24 areas across the country, according to the report, many sellers would find a pool of buyers vying for their homes.

To be sure, Smoke scoured 200 of the largest metro areas across the country on realtor.com and found that the prices in 98 of them had increased by 6% or more. In 66 of those markets, houses are spending 8% less time on the market, he said.

Prices and inventory go hand in hand. The average supply of available homes for sale was 4.9 months’ worth, according to the report. In a normal market, there would be a six- to seven-month supply of available homes.

“This is a clear sign that demand is growing faster than supply,” said Smoke. Once more homes are listed, prices would moderate, he said.

The NAR wants more new construction. “Unless homebuilders significantly boost construction, housing supply shortages could develop and lead to further price acceleration this spring,” said Yun.

The five most expensive housing markets in the fourth quarter of 2014, according to the report, were:

San Jose, CA, $855,000

San Francisco, CA, $742,000

Honolulu, HI, $701,300

Anaheim-Santa Ana, CA, $688,500

San Diego, CA, $493,100

The five lowest-cost metro areas were:

Youngstown-Warren-Boardman, OH, $78,000

Rockford, IL, $86,800

Toledo, OH $87,100

Decatur, IL $90,400

Cumberland, MD, $90,500

Housing demand is rising as buyers look to take advantage of low interest rates and a slight uptick in median income ($65,782). To afford a single-family home at the national median price of $208,700, a buyer making a 5% down payment would need an income of $45,863, while a 10% down payment would require an income of $43,449 and $38,621 for a 20% down payment, according to the report.

Regional breakdown

In the Northeast, sales rose 2.5% in the fourth quarter of 2014 but are 4.1% below the fourth quarter of 2013, according to the report. The median price of the home rose 2.2% to $246,300.

In the Midwest, sales of existing homes declined 4.7% in the fourth quarter and are 0.6% below their 2013 level. The median price of an existing single-family home in the Midwest increased 6.2% to $162,000.

In the South, sales climbed 2.7% in the fourth quarter of 2014 and were 5.8% over 2013 levels. Median prices also increased 6.2% to $183,000, according to the report.

In the West, sales fell 6%; however, the median price of a home jumped 4.8% to $299,500 in the fourth quarter.

Source: Realtor.com - By: Chrystal Caruthers

HUD: 2015 is year of housing opportunity

WASHINGTON – Feb. 11, 2015 – Housing and Urban Development Secretary Julian Castro sees big opportunity in the housing market this year, with the easing of credit opening the door to more buyers.

"I see 2015 as the year of housing opportunity, particularly homeownership," Castro told CNN's Christine Romans. "A good example of that is the reduction in the FHA mortgage premium."

Castro points to the recent move of the Federal Housing Administration, which reduced its insurance premiums from 1.35 percent to 0.85 percent. The reduction is expected to amount to about $900 per year for borrowers. Castro says the reduction in premiums will likely spur a quarter of a million more homebuyers in the next three years.

"That's a real impact," he says.

Also in expanding credit, mortgage financing giants Fannie Mae and Freddie Mac recently announced they will allow first-time home buyers to qualify for loans with downpayments as low as 3 percent.

But as some lenders loosen their access to credit, could this brew another housing bubble?

"A few years ago, it was too easy to get a home loan," Castro says. "Now we've swung to the other extreme – now it's too hard."

Castro says that even former chairman of the Federal Reserve Ben Bernanke made public remarks a few months ago that he was struggling to qualify for refinancing mortgage due to the tight lending standards.

"We need to be in the strong middle – where we have strong safeguards in place but at the same time also a robust opportunity for folks who are responsible and ready to won a home to be able to get a mortgage," Castro says.

Source: "2015: The Year to Buy a House," CNNMoney (Feb. 2, 2015)

New investors rush into student housing

NEW YORK – Feb. 10, 2015 – In the last week of January, Starwood Capital closed a deal to buy four student housing properties. And before the week was done, Starwood had bought another portfolio in a second deal — building its portfolio of student housing beds from zero to several thousand in just a few days.

"There are a lot of new people in the market for student housing properties," says Jaclyn Fitts, director of student housing for CBRE's capital markets group, which helped arrange the four-property deal. Starwood is expected to release more details of the transactions in February.

New investors have piled into the market for student housing properties — driving property prices and the volume of deals up and driving capitalization rates down. The new student housing buyers include private equity funds and institutional investors, which are becoming much more likely to bid for student housing properties.

Student housing investors bought between $2.8 billion and $3.0 billion in properties in 2014, continuing the very fast pace set the year before, according to preliminary totals from CBRE, which will release its official count of student housing investments in February.

New investors have been drawn to the sector as it becomes more understood. "Student housing is much more accepted as an asset class," says Dorothy Jackman, managing director of student housing for real estate services firm Colliers International.

Investors are also impressed with how student housing performed through the Great Recession. Prices for apartment properties overall fell by about 20 percent, but average prices per bed for student housing properties stayed strong. "The industry demonstrated resilience," says CBRE's Fitts.

"There are now four or five more private equity funds specifically tasked to buy student housing," says Fitts. That's in addition to funds managed by private equity firms with a long history in student housing like Harrison Street and Blue Vista.

"The student housing industry as a whole is experiencing higher demand than I have ever seen," says Fitts.

Bidding wars are driving prices higher. Investors now routinely accept cap rates as low as 5.5 percent for student housing properties within walking distance of tier-one universities, and as low as 7.5 percent for properties a shuttle bus ride away from tier-two or tier-three schools.

"There is definitely downward pressure on cap rates," says Fitts.

Prices for student housing properties are now similar to the prices investors pay for conventional apartment properties, relative to income. The spread between conventional multifamily cap rates and student housing cap rates has shrunk from 50 to 100 basis points four years ago to just 25 to 50 basis points today.

Financing is also more available for student housing properties, at more attractive terms. For example, Fannie Mae and Freddie Mac no longer add an interest rate premium to most loans for student housing properties. Other lenders have also become more accommodating as student housing becomes a more mainstream asset class.

The most valuable properties are still those within walking distance of campuses. Both Education Realty Trust Inc. (EdR), a student housing developer and owner, and American Campus Communities, a student housing REIT, have stated they are focused on those types of assets. However, the demand for student housing is strong enough to encompass stabilized projects even if they are a bus ride away from the school.

"More people are diversifying," says Colliers International's Jackman. "They are getting more comfortable getting out of the box. … Maybe there might be opportunities in tier-two schools. Maybe distance from campus is not so important."

Developers are building student housing quickly, though so far demand has kept up with supply, as enrollment continues to grow for tier-one schools. Developers completed 4,149 student housing beds in 2014, more than twice the 1,926 completed in 2013. Occupancy rates averaged about 95 percent, down slightly from 96 percent in 2013, according to data aggregated by Colliers.

"We don't see occupancies declining in 2015," says Jackman.

Source: Penton Media, National Real Estate Investor, Bendix Anderson.

America’s housing stock: Who holds it and who’s buying?

NEW YORK – Feb. 9, 2015 – Analysts expect the nation's housing recovery to push onward in 2015, supported by new types of investors and more traditional sales. At the same time, the still-sizable foreclosure inventory will continue to influence home pricing in surprising ways.

Guy Cecala, publisher of Inside Mortgage Finance, confirms that the sector is returning "to a much more traditional housing market, where investors play a much smaller role and the market is more dependent on regular buyers."

RealtyTrac data shows that 421,164 residential properties are still bank-owned, with another 642,927 in default and in the foreclosure process but not yet repossessed.

Daren Blomquist, vice president at RealtyTrac, states, "So there's a lot of property still in the foreclosure pipeline."

At the same time, much of the "shadow inventory" of foreclosures -- residences in various stages of foreclosure, but not yet on the market -- never ended up on the multiple listing service (MLS).

Instead, lenders have been able to sell off inventory in bulk to large REITs and other investors. As a result, these "sales" did not result in as much price drag as some analysts projected.

Fewer distressed sales will actually boost prices overall in 2015, states Tom Popik, research director of the HousingPulse Tracking Survey. He reasons that REOs (real estate owned, an industry term for lender-owned properties), short sales and damaged REOs all trade at a discount of 25 percent to 40 percent of regular home prices.

HousingPulse calculates that distressed sales were 23 percent of total sales last month, a slight increase from the lowest level in four years.

Source: Investor's Business Daily (01/30/15) P. A10; Doler, Kathleen

2015's Most Desired Neighborhoods

The most sought-after neighborhoods in 2015 won't be the trendiest or the most expensive. Instead, Redfin's recent list of the Hottest Neighborhoods of 2015 reveals that buyers are focused on "neighborhoods of compromise" that offer affordability and convenience and an overall good value, rather than living in a trendy location with a huge mortgage.

This is in contrast to last year's results that listed hip areas like Higland Park, Los Angeles and The Mission District in San Francisco as the most desired neighborhoods, and found that buyers preferred trendy urban areas with high price-tags.

"Many homebuyers have recoiled from the dramatic increase in house prices in urban centers posted over the past three years,” said Redfin Chief Economist Nela Richardson. “They are now searching for more affordable places farther out. Expect the neighborhoods on this list to see high demand in 2015 as rock-bottom mortgage rates and a more lenient mortgage lending environment help make homeownership in expensive cities less costly.”

To compile the list, Redfin looked at the neighborhoods that received the most page views and favorites on their site, analyzed data from their own "Hot Homes" algorithm, and asked local Redfin agents.

The El Cerrito neighborhood in San Diego tops the list of the most desired neighborhood of 2015 due to its mix of good shopping and dining and affordability compared to trendier neighborhoods where home buyers are finding themselves priced out.

Redfin's 10 Hottest Neighborhoods of 2015:

1.  El Cerrito (San Diego, CA)

2.  Dickinson Narrows (Philadelphia, PA)

3.  East Atlanta (Atlanta, GA)

4.  Little Neck (Queens, NY)

5.  Bohemia (Long Island, NY)

6.  Curtis Park (Sacramento, CA)

7.  Andersonville (Chicago, IL)

8.  Woodridge (Seattle, WA)

9.  Crocker (San Francisco, CA)

10. Woodridge (Washington DC)

Source: "Redfin Predicts the Hottest Neighborhoods of 2015," Redfin (Jan. 22, 2015)

‘Domino Effect’ to Set Off 2015 Housing Wave

Home prices between the top and bottom segments of the housing market are rising, which could unleash a “domino effect” that builds first-time and move-up buyer momentum this year, notes a new real estate report by Clear Capital. But the build up in traditional home buyers is coming at the cost of declines in the luxury home market. 

"The rate of appreciation for top tier homes is stalling, which is a more direct reflection of waning fair market demand,” says Alex Villacorta, vice president of research and analytics at Clear Capital. “While this is a concerning development, there is a silver lining. The moderating upper tier may give traditional buyers a moment to catch their breath, and entice move-up buyers to enter this segment of the market. The ripple effect of opening up inventory all the way down the price spectrum could provide opportunity and motivation across all segments, including first-time buyers, to enter the marketplace.”

The lower and middle-range ends of the housing market is stabilizing, allowing traditional home buyers to re-emerge. “The next phase of the housing recovery is dependent on healthy demand from this segment,” Villacorta says.

The lower-end of the housing market was once driven mostly by investor activity, but now doors are opening for first-time home buyers to break in.  Also, as the number of underwater mortgages steadily decreases, home owners in the mid-tier of the home pricing segment can finally trade up to a larger, more expensive home.

Lower-end properties have been outpacing price growth in the luxury market, Clear Capital reports. The low-tier has posted double-digit gains year-over-year of 10.2 percent, compared to the top tier, which saw the lowest price growth rate among the three tiers, at 3.6 percent year-over-year.

“This divide between a healthy low tier and stalling top tier could kick-off a domino effect,” Clear Capital notes in its report. “Stalling prices in the top tier of the market could create the perception of a good deal. This instills confidence in mid-tier home owners, motivating them to move-up to the top tier. In turn, this opens up more opportunity for low tier home owners to move-up to the mid tier. … This domino effect could be the catalyst for balanced demand across all sectors of the market.”

The Midwest is leading the pack, according to Clear Capital. The Midwest posted double-digit gains in the low-tier segment at 13.6 percent, while seeing its top-tier of the market fall 3.3 percent with prices. The Midwest is the only region currently seeing price appreciation in the low and mid tiers, growing above 1 percent.

As such, Clear Capital economists are predicting the Midwest to be the first region in U.S. to realize full buyer momentum among first-time and move-up buyers, due to its moderating top tier.

Source: “Clear Capital: Traditional Homebuyers, Make Your Move,” Clear Capital (Feb. 2, 2015)

Homebuyers need to act now

CHICAGO – Feb. 4, 2015 – Homebuyers need to move fast if they want to spend less, according to Jonathan Smoke, chief economist at realtor.com.

"Delayed purchases will only result in higher monthly mortgage payments as prices and rates rise," Smoke writes. Realtor.com forecasts that affordability may decline as much as 10 percent over the year.

The Federal Reserve continues to remind the financial markets that it plans to raise its target federal funds rate this year, which will cause mortgage rates to rise. Many economists predict that 30-year fixed-rate mortgages will average near 5 percent by the end of the year.

For now, mortgage rates are near historical lows for homebuyers and homeowners. Freddie Mac reported last week that the 30-year fixed-rate mortgage averaged 3.66 percent (last year at this time it averaged 4.32 percent), and 15-year fixed-rate mortgages averaged 2.98 percent (a year ago, it averaged 3.40 percent).

"Right now, the Fed is using the word 'patient' to describe its approach to picking the time to raise the target rate," Smoke notes. "However, when the Fed 'loses patience,' rates will go up at least 20 to 40 basis points in anticipation of the target rate officially going up. … So, buyers beware: The clock on these low mortgage rates may be ticking."

Source: "2015: Buy Now, Before the Fed's Patience Ends," realtor.com® (Jan. 30, 2015)