Simon Constable explains to Kelsey Hubbard how rising affordability of housing will be a key to a turnaround. Plus how to invest in housing without buying a home.
.There might finally be some good news this year about the nation's dismal housing market. Or, at least, the bad news could stop.
Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006.
For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets.
Andrew Roberts
.But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn't necessarily mean owning a home.
First, let's recap the economic signs a bottom is close.
Houses Are a Good Deal
Housing is the most affordable it has been in decades, according to analysts at Moody's Analytics. They don't just look at house prices. They also look at incomes.
Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years' pay, although that varies nationally.
At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in "real terms" than they were typically during the period 1989 through 2003.
The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months.
In the end, it will be affordability that will drive people to buy homes.
"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.
It is definitely bullish. But what about timing?
"Housing prices will probably bottom in 2011," says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.
.Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that's small. Consider this: In some markets, home prices have fallen by half or more since 2006.
For instance, in once-hot Miami you can snap up an average house for under $166,000, according to recent data from the National Association of Realtors. That's down from $371,000 in 2006. Another 5% drop would take it to $158,000.
Investors Stepping Up
Here's another sign the market is nearing a bottom: Investors have started to buy up houses and condos, in some instances paying entirely in cash. That's a far cry from the heady bubble days when borrowed money seemed the key to riches. The bubble-era speculators who got burned tended to buy at the peak and borrowed heavily to do so. When the crash came, they quickly saw their wealth erased.
Take Miami again. Last year, more than half of all transactions were made entirely in cash, according to a recent report in The Wall Street Journal. That compares with 13% of deals in the last quarter of 2006, the height of the bubble. Similarly, in Phoenix 42% of sales in 2010 went to all-cash buyers, up threefold since 2008.
It's a sign that these investors are betting on a rebound. Investors buying at current prices are looking for deals, or so-called bottom fishing. They typically like to pay entirely in cash (or with a relatively small loan) to speed up transactions. That can be vital for an investor wishing to lock in a deal fast.
If this is a turn in the market, then it might make sense to go out and buy a home. But, warns Pimco's Mr. Simon, "buy in areas you really know."
Plan to Stay Put
Buy and hold. While the good news is that the worst of the housing crash might be over, the bad news is that the fast gains of the glory days of 2005 and 2006 won't be back any time soon. So to cover the costs of buying and selling, and what could be a prolonged recovery, plan to own for more than 10 years, explains Jack Ablin, chief investment officer at Chicago-based Harris Bank.
Also remember that borrowing money to buy a house can still be risky. If you pay for a $100,000 property with $20,000 cash and borrow the rest, a dip in the value of $20,000 would leave you with zero equity. On top of that, you'd have to pay to maintain and repair the property, something not necessary when renting.
Home Buying Without a House
There are other ways to benefit from a real-estate rebound than directly buying a house. Such investments include stocks, mutual funds or exchange-traded funds. Unlike homes, which typically cost tens of thousands of dollars, these financial investments can be made in smaller amounts and typically are easy to sell.
Weiss Research's Mr. Larson says although new homes are oversupplied, home builders might benefit from a rebound as the situation rights itself.
Rather than pick individual stocks, he says, it probably makes sense for small investors to pick broader investments that hold many different stocks. In particular, he points to the SPDR S&P Homebuilders ETF (XHB), which tracks a basket of home-builder stocks.
Mr. Larson also highlights specialized mutual funds such as the Fidelity Select Construction & Housing fund (FSHOX), which tracks home builders as well as home-improvement retailers like Home Depot and Lowes that would also likely benefit from a housing recovery.
Thursday, March 3, 2011
Thursday, October 28, 2010
Stand-Alone Home Prices Move Above $500,000 Mark
By Mark Mueller
Friday, October 22, 2010
The median price of an existing Orange County home moved back above the $500,000 mark in September, while the pace of sales here remained sluggish, the California Association of Realtors said Friday.
The median price for an existing stand-alone OC home sold in September was $510,530, a nearly $11,000 or 2.2% increase from August, and a 2.8% increase from the prices homes here were selling at a year earlier.
The area’s median sales price now is up about 21% from the recent bottom of the market, seen in January 2009, according to the association’s figures.
Prices here are still off more than 31% from the peak of the market, when the median sales price for an OC home topped $747,000 in April 2007.
The number of OC home sales in September was up 1.6% from a month earlier, the Realtor association said.
Sales were down 10.4% from a year earlier.
The median sales price of an existing home in California was $309,900 in September, a 2.7% decrease from August and a 4.5% increase from a year ago, according to the association.
Sales in California were up about 3.8% from August’s levels, but were off nearly 12% from a year earlier. The inventory of homes priced under $500,000 remains “lean,” according to the association.
The association excludes condominiums from its figures.
Including condos, the median price of an OC home sold in September was $445,000, a jump of more than $16,000 or 3.7% from a year earlier, according to a report earlier this week from San Diego-based MDA DataQuick, a unit of Canada’s MacDonald, Dettwiler and Associates.
Friday, October 22, 2010
The median price of an existing Orange County home moved back above the $500,000 mark in September, while the pace of sales here remained sluggish, the California Association of Realtors said Friday.
The median price for an existing stand-alone OC home sold in September was $510,530, a nearly $11,000 or 2.2% increase from August, and a 2.8% increase from the prices homes here were selling at a year earlier.
The area’s median sales price now is up about 21% from the recent bottom of the market, seen in January 2009, according to the association’s figures.
Prices here are still off more than 31% from the peak of the market, when the median sales price for an OC home topped $747,000 in April 2007.
The number of OC home sales in September was up 1.6% from a month earlier, the Realtor association said.
Sales were down 10.4% from a year earlier.
The median sales price of an existing home in California was $309,900 in September, a 2.7% decrease from August and a 4.5% increase from a year ago, according to the association.
Sales in California were up about 3.8% from August’s levels, but were off nearly 12% from a year earlier. The inventory of homes priced under $500,000 remains “lean,” according to the association.
The association excludes condominiums from its figures.
Including condos, the median price of an OC home sold in September was $445,000, a jump of more than $16,000 or 3.7% from a year earlier, according to a report earlier this week from San Diego-based MDA DataQuick, a unit of Canada’s MacDonald, Dettwiler and Associates.
Friday, October 22, 2010
A Little-Known Loan Program for Fixer-Uppers
BUYERS of distressed homes or any other fixer-upper not only face the daunting task of turning a run-down property into a livable one, but often worry about paying for it all.
There’s a way to make essential repairs and add other accouterments without dipping into savings or taking out a home-equity loan. The Federal Housing Administration’s 203(k) rehabilitation program provides for loans covering renovation costs as well as the purchase price of a primary residence — investors excluded — and it allows for just a 3.5 percent down payment.
“It’s a fantastic program, one that hasn’t been fully utilized by the American public,” said Arthur Hood, the owner of the Vanguard Inspection Group in Teaneck, N.J., which is certified by the Department of Housing and Urban Development to help borrowers with the program.
Although the program has been around since 1978, it is not well publicized, and many borrowers mistakenly think they have to buy a wreck in order to qualify. They don’t.
The house “doesn’t have to be falling apart; it could just be outdated,” said Joseph Latini Sr., the president of Hartford Funding, a lender in Ronkonkoma, N.Y. “It just has to appraise below market value and then at market value with the repairs.”
While “run-down” typically means a foreclosure, the program also applies to many historic and older houses as well as short sales and bank-owned homes. HUD outlines the rules on its Web site.
Luxury improvements are ineligible, though the program has wide definitions of “repairs” and “modernization.” Covered repairs include a new roof or heating system (geothermal ones too). Decorative changes, like replacing vinyl with ceramic tile on the kitchen floor replacement, or painting the interior, are covered.
The loan rates typically run around a percentage point higher than conventional ones, and come in 15- to 30-year terms, either fixed or adjustable. Additional paperwork for inspection, appraisal, title updating and the like pushes closing costs $1,000 or more higher than average. Most borrowers, however, refinance to a conventional loan after a few years, Mr. Hood said.
Demand for 203(k) financing has been on the rise, although experts predict some contraction given the major banks’ current moratorium on foreclosures. For the first nine months, HUD insured $2.9 billion in 203(k) loans, compared with $3 billion for all of 2009 and $401 million in 2005.
Home buyers must put down at least 3.5 percent of the current value of the property and use a HUD-approved lender, appraiser and a contractor approved by the lender for the repairs. One list of approved businesses can be found at 203kcontractors.com.
Using a HUD-approved consultant like Mr. Hood, who charges a flat fee of $400 to $1,000, is not required, but the agency recommends it to expedite processing. A HUD-approved inspector will make around four trips to the home to ensure that renovations are being properly done; each trip costs the borrower around $150.
Most 203(k) lenders are smaller regional and community banks. Loan limits vary by geography, and range from $271,050 to $729,750, which covers the total mortgage. The first $5,000 must go toward the more substantial repairs like roof replacement. HUD insures the loan.
Once the borrower receives the mortgage, money owed the contractor for repairs is held in escrow by the lender until the work is completed; all work must be finished within six months.
A miniversion of the 203(k) — called a Streamline (k) — has a repair-cost limit of $35,000 and restricts upgrades to minor improvements like replacing gutters. In this case, the do-it-yourself approach is permitted.
“This is a loan for someone who’s willing to be a little involved,” said Jon Sigler, a banker in Madison, Conn., who works for at the Franklin American Mortgage Company.
There’s a way to make essential repairs and add other accouterments without dipping into savings or taking out a home-equity loan. The Federal Housing Administration’s 203(k) rehabilitation program provides for loans covering renovation costs as well as the purchase price of a primary residence — investors excluded — and it allows for just a 3.5 percent down payment.
“It’s a fantastic program, one that hasn’t been fully utilized by the American public,” said Arthur Hood, the owner of the Vanguard Inspection Group in Teaneck, N.J., which is certified by the Department of Housing and Urban Development to help borrowers with the program.
Although the program has been around since 1978, it is not well publicized, and many borrowers mistakenly think they have to buy a wreck in order to qualify. They don’t.
The house “doesn’t have to be falling apart; it could just be outdated,” said Joseph Latini Sr., the president of Hartford Funding, a lender in Ronkonkoma, N.Y. “It just has to appraise below market value and then at market value with the repairs.”
While “run-down” typically means a foreclosure, the program also applies to many historic and older houses as well as short sales and bank-owned homes. HUD outlines the rules on its Web site.
Luxury improvements are ineligible, though the program has wide definitions of “repairs” and “modernization.” Covered repairs include a new roof or heating system (geothermal ones too). Decorative changes, like replacing vinyl with ceramic tile on the kitchen floor replacement, or painting the interior, are covered.
The loan rates typically run around a percentage point higher than conventional ones, and come in 15- to 30-year terms, either fixed or adjustable. Additional paperwork for inspection, appraisal, title updating and the like pushes closing costs $1,000 or more higher than average. Most borrowers, however, refinance to a conventional loan after a few years, Mr. Hood said.
Demand for 203(k) financing has been on the rise, although experts predict some contraction given the major banks’ current moratorium on foreclosures. For the first nine months, HUD insured $2.9 billion in 203(k) loans, compared with $3 billion for all of 2009 and $401 million in 2005.
Home buyers must put down at least 3.5 percent of the current value of the property and use a HUD-approved lender, appraiser and a contractor approved by the lender for the repairs. One list of approved businesses can be found at 203kcontractors.com.
Using a HUD-approved consultant like Mr. Hood, who charges a flat fee of $400 to $1,000, is not required, but the agency recommends it to expedite processing. A HUD-approved inspector will make around four trips to the home to ensure that renovations are being properly done; each trip costs the borrower around $150.
Most 203(k) lenders are smaller regional and community banks. Loan limits vary by geography, and range from $271,050 to $729,750, which covers the total mortgage. The first $5,000 must go toward the more substantial repairs like roof replacement. HUD insures the loan.
Once the borrower receives the mortgage, money owed the contractor for repairs is held in escrow by the lender until the work is completed; all work must be finished within six months.
A miniversion of the 203(k) — called a Streamline (k) — has a repair-cost limit of $35,000 and restricts upgrades to minor improvements like replacing gutters. In this case, the do-it-yourself approach is permitted.
“This is a loan for someone who’s willing to be a little involved,” said Jon Sigler, a banker in Madison, Conn., who works for at the Franklin American Mortgage Company.
Thursday, September 23, 2010
Friday, September 10, 2010
-
Foreclosure Counselors: What They Can and Can't Do
Foreclosure counselors can make the difference between losing your home and keeping it. Here’s how they work and how to choose one. Read
-
Website Resources for Foreclosure Help
Here are some legitimate resources to help you fight the foreclosure crisis. Read
-
Foreclosure Help: 5 Pros You Need on Your Team
Know which experts provide foreclosure help—often at no cost to you—and how to find them. Read
-
Facing Foreclosure: What to Do Right Now
If you’re facing foreclosure, don’t panic: Take steps right now to save your home or at least lessen the blow of its loss. Read
-
Avoid Foreclosure Rescue Scams
With foreclosure rescue scams widespread as more homeowners fall behind on mortgage payments, be smart if you seek help. Read
Visit houselogic.com for more articles like this.
Copyright 2010 NATIONAL ASSOCIATION OF REALTORS®
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