Recent article published 5/19-2010 

“THIS MONTH IN REAL ESTATE” REPORTS 

“The economic recovery continues gaining traction slowly but steadily. First quarter GDP, a key measure of the economy, came in at a positive 3.2 percent – an indicator that we have arrived, at last, at a sustainable recovery. However, this recovery is subdued compared to previous recessions. Without a greater upswing in GDP, businesses will continue to add jobs slowly. The positive news of sustainable economic growth is tempered by the longer-than-normal time frame it will take to recoup job losses.” Now that paragraph makes sense but they continued. 

“High unemployment and elevated levels of foreclosure and distressed homeowners continue to be two of the biggest factors in preventing a robust recovery. The government has turned its attention to matters to help bolster the economy including unemployment and financial reform. The latter is currently working its way through Congress. The government’s attentive attitude toward these obstacles is seen as a positive sign by industry and economic experts.” 

Now that is interesting commentary – “the government’s attentive attitude …is seen as a positive by ….experts”. This mess started with the government holding rates too low too long and in forcing banks to loan to unqualified individuals to purchase homes. The latter started way back in 1976 and was pushed hard beginning in 2006 and continues to THIS DAY because of Barney Frank. So this publication is implying that “industry and economic experts” are relying on the Government for help. Even if that were true, why are these “experts” hailing the beginning of Government help now? I thought that started in October, 2008 when the world was going to end without the Government bailing out every one of their friends using $800,000,000,000 of our tax money! May I suggest that those “experts” need to be thrown out along with everyone in office who does not understand economics?  

“This Month In Real Estate” continues: “existing home sales strengthened in March to 5.35 million, up 6.5% from February and up16% from March, 2009. This is the ninth consecutive month of year-over-year increases. According to Lawrence Yun, NAR chief economist, the ‘home-buyer tax credit has been a resounding success,’ increasing demand and stabilizing the market. In March, 44% of sales were first-home-buyers.” This news sounds good but ignores the unintended negative consequences. 

I reported several weeks ago that only about 20% of first-home-buyers purchased “because” of the $8,000 credit but of course the Government has to also pay the $8,000 to the other 80% who were “going to buy a home anyway”. So in essence we tax payers paid on average $40,000 each to move that 20% of first-home-buyers into purchasing during the past 12 months. We just do not need that kind of help! 

We will not know for sure until 6 months or a year from now, but if most of those 20% were going to buy a home anyway later, then the $8,000 times 3 million first-homes buyers = $24,000,000,000 was a complete waste of tax payer monies. Furthermore, if they were going to buy anyhow in the next 12 months but have already bought, that is going to severely negatively impact the housing market over the next 12 months. Whatever happens let’s not go to the Government for more “help”! 

A recent article published 4-21-10: 

FED SAYS THE RECESSION IS ENDING – CONFIRMED!
Back in August of last year I wrote that the “Federal Reserve ended its policy-making meeting last Wednesday, August 12, 2009 with the declaration that the recession is ending and it would move toward more normal policies. The FED added that it expected inflation would remain subdued for some time. They're saying that things are going according to plan and that the policy is O.K.”
Well it appears that the FED was correct last August at least with respect to housing. I received confirmation of this information at a seminar today given by Dr. Ted Jones, Director of Investor Relations of the Stewart Title Companies. Dr. Ted stated that our economy has been lead out of every recession by housing and this time is no exception. His housing sales data indicates that sales of single family housing hit a low point sometime in third quarter of 2009 and has been gaining momentum ever since. This data corresponds with mine for our local market as I reported last week.
Dr. Ted also said that the recession can not be over until jobs begin to be created in the private sector of our economy and that virtually all jobs that have been created during the past year have been government employment. He said it does not matter how good the conductor is (the President), if the orchestra does not know how to the play the correct music (the Congress).
Dr. Ted Jones is predicting that since the FED has stopped buying mortgage backed securities that interest rates will continue to rise. Interest rates have gone up from 4.75% to 5.25% for most 30 year fixed mortgage lenders. The mortgage rate for 2011 will average 7%. So once again we are faced with stating that THIS YEAR is the best time to buy a home in the foreseeable future.
Also as reported last August, “In another sign of the times The Associated Press (08/12/2009) reported “Toll Brothers sees light and eager buyers.” Luxury home builder Toll Brothers reported that for the first time in four years its signed contracts exceeded the prior year's level. The company said it is scaling back sales incentives.” Some early signals turn out to be correct. Only time will tell but the economy nationally does seem to be on the right track again.
Again as stated last August, “The actual title transfer of properties in our market area for the first three months of the year (2009) was the smallest number on record for any previously recorded 3-months of residential title transfers since the recession years of 1978 to 1982 when mortgage interest rates rose to as high as 16% for a 30 year fixed mortgage.” So when I reported last week (SEE NEXT ARTICLE) that the first quarter of 2010 title transfers had risen by 5%, that is marginally good news but since it is now confirmed nationally, it may actually be a sign of good times ahead.
Buyers, if you are fence sitting, call the Kodger Team for the latest in mortgage and other information pertinent to your needing to buy now while the housing market is still near its bottom. With the FED changes, Toll Brothers moves, and interest rates on the rise, you may not have long to enjoy this exceptional “buyer’s market”! 

A recent article published 4-14-2010:
LOCAL MARKET COMPARED WITH NATIONAL MARKETS 

Nationally the share of home purchase transactions involving distressed properties surged to nearly half in February, according to the latest Campbell/Inside Mortgage Finance
Monthly Survey of Real Estate Market Conditions. At the same time, participation
from first-time homebuyers picked up as the expiration of the tax credit approaches.
Last month distressed properties – those involving homes acquired as part of a
foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase
transactions tracked in the closely-watched monthly survey. This was way up from
the 37.3% level recorded as recently as November. It was also the highest distressed
property market share seen since last July. 

Stepped up government efforts, including temporary foreclosure moratoriums and
a push to qualify more financially troubled homeowners for mortgage modifications,
temporarily reduced the number of distressed properties coming on the NATIONAL housing market in the fall and much of this past winter. But now there appears to be a
growing number of distressed properties hitting the housing market. 

There are three major types of distressed properties: damaged Real Estate Owned
(REO), move-in ready REO, and short sales. During the period from November to
February, the proportion of all three categories rose. Short sales now account for the greatest % at 17. Lender losses on short sales are typically lower than for REO sales so both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply walk away from their properties because they are up-side-down, mortgage servicers are having trouble expeditiously processing these complicated transactions. Personally, I have worked with three short sale situations and each lender required different handling. 

Locally in Avon, Avon Lake and the Sheffields, the inventory of distressed properties for sale is less than 2 ½%. We have many vacant homes but that is a phenomenon which was first mentioned in this column in March, 2005. Meanwhile, in a hopeful sign for the housing market, first-time homebuyers are once again playing a growing role. The latest Campbell survey showed that the share of first-time homebuyers grew from 38.9% in January to 42.9% in February. Much of this growth is attributable to the major tax credit due to expire April 30. In order to qualify for the $8,000 tax credit, first-time homebuyers must have signed a purchase contract by April 30 and must close the transaction by June 30. 

Our market has picked up as we have gotten into Spring. Under normal circumstances that is not surprising but who knew what would happen given the current state of affairs. First quarter single family and condominium title transfers in our local market area are slightly better in number increasing to 94 from 88. The average sale price increased from $170k in 2009 to $209k in 2010 due to an almost 50% increase in Avon Lake title transfers from 25 to 37. This is good news, however, considering that in the first quarter of 2005 there were 162 title transfers at $204k each, we are far from where we would all wish for our real estate market. We also will not know until the end on 2010 what affect the $8,000 first home buyer credit and the $6500 buyer credits influence has been on possibly pulling home sales forward. 

The Causes of the Housing Boom & Bust
published 2-17-10
The Housing Boom and Bust by Thomas Sowell exposes who inflated, then burst the housing bubble. If you are sick and tired of seeing mortgage bankers blamed for the lax lending standards that unleashed the recent financial tsunami you might find the correct answer in Stanford University professor Sowell’s book.  

Sowell lays out his case methodically, dispassionately and devastatingly to drive home two key points: 1. There was no such thing as an “affordability crisis” in U.S. housing before Bill Clinton and George Bush unwisely invited millions of unqualified buyers into the homeownership tent. 2. The loosening of mortgage-lending standards can be laid squarely at the feet of certain self-serving, unaccountable and largely unrepentant Congressional legislators — Sowell flays Rep. Barney Frank and Sen. Chris Dodd in particular — who coerced banks to make home loans to low-income buyers.  

But it is not just national government intervention in the free market which caused the housing bubble. Land-use restrictions in certain pockets of the country triggered an insane upward spiral in land prices in each enclave forcing housing prices to soar in lockstep. To drive home his point, Sowell contrasts San Francisco and its fellow “communities in which there were severe limitations on the building of housing” with “anything-goes areas such as Dallas and Houston.” He cites a sobering Coldwell Banker estimate that appeared in the journal Policy Analysis in October 2007: “A house that costs $155,000 in Houston would cost more than a million dollars in San Jose.”

Sowell states, “A fundamental misconception was that the free market failed to produce affordable housing, and that government intervention was necessary to enable ordinary people to find a place to live. Yet the hard evidence points in the opposite direction: Where the market was more or less left alone, housing prices took a smaller share of family income.

The problem of a lack of “affordable housing,” as conceived by many in the media and in politics, bore little resemblance to the situation in the real world. It was not a national problem but a severe problem in particular places. Washington politicians who set out to solve a problem that they misconceived contributed instead to the housing boom and bust.”

The real-estate scheme Sowell proves that began in 1977 is this: Liberal government agencies and officials, on a covert quest to bring about socialized housing, have exerted pressure both explicit (the 1977 Community Reinvestment Act and its ilk) and implied (veiled threats to withhold merger approvals) to force banks to degrade their mortgage-lending standards and embrace low-income borrowers in the name of Affordable Housing.

Despite the bitterness of his anti-Barney bromides, it’s hard to contest the objective facts the author trots out. Take his analysis of the net effect that HUD pressure, for one, had on Fannie Mae and Freddie Mac. In 1996, HUD set a “quota” that a staggering 42 percent of the mortgages Fannie and Freddie purchased that year would be for below-median-income borrowers. This meant riskier loans were being valuated as good loans and lenders assumed, could always be unloaded on Fannie or Freddie, with their implied guarantees of failsafe government backing.  

We are learning the folly of such government intervention into the market place and Sowell ruefully concludes that “the market (meaning us) learns — even if only the hard way — and adjusts with remarkable speed. The question is whether politicians and government bureaucrats learn, especially if they pay no price for being wrong.”  

PUBLISHED ARTICLE from January 13, 2010: 

RECALLING 2009 AND LOOKING AHEAD TO 2010 

Over all in the USA there was tremendous turmoil. The speculation by builders and individuals in some of the “hot” markets of 2003, 2004 and 2005 has led to disastrous results in those same areas in 2006 through 2009. The near collapse of the banking system has had tremendous negative effects on the real estate market. 

As I write this in early 2010 foreclosures are being reported as 68% higher then November 2006 and if the current forecasts are correct, the rate of foreclosures that peaked in August 2006 will go through another peak sometime later in 2010. Ohio has had one of the highest foreclosure rates and, as a percentage of population, Lorain and Cuyahoga counties are among the highest in the nation. 

In our primary market, Avon, Avon Lake and the Sheffields, 2009 has seen the monthly number of MLS sales increase after beginning at its lowest level ever in January, 2009. The fact that the monthly “demand” has gradually returned to about the same as recent past years was good news in our market but sales still remains about 25% below the peak years of 2005 and 2006. Sale prices began to fall in early 2006 because of our over-supply. This over-hang of “too may homes for sale” continues. Until the “months-of-inventory for sale” returns to the 2004 level, pricing will be depressed and almost everyone will continue to feel the negative effects of “working off” this excess inventory of homes.  

Those who have and who will continue to benefit from this continuing pricing pressure are buyers. Mortgage requirements have tightened and will restrict some buyer entry into what has become a wonderful opportunity to purchase a home in 2010 at 2003 pricing with rates still near 5% for 30 year fixed mortgages.  

It is sad that anyone has to loss their home for any reason but it appears that “only” about 25% of those who purchased using sub-prime rates will loss their homes. A large percentage, but sub-prime only represented about 12% of the total number of mortgages taken in 2004-07. This means that there are about 75% of sub-prime buyers who would not have been able to purchase, who did in fact purchase and who will not loss their homes. I mentioned in this space 2 years ago that this lack of sub-prime borrowers will cause a loss of buyers going forward. The Government has seen the same difficulty and has been encouraging first-home buyers through its continuing program of giving an $8,000 tax credit for contracts signed by April 30 and which title transfer by June 30, 2010. This program has been a definite assist to our market. Nationally it is estimated that first-home buyers represent about 40% of all buyers. 

What does all this mean for 2010? Local home buying should continue on its current pace as long as there is not a national second dip-recession. If the demand side retracts again, then our local pricing will fall further than the 5% I see happening yet this coming year as we continue to work off our over-supply. If the national economy stays strong, 4% growth is being forecasted, our local market should continue on the way to total recovery by 2012. Happy New Year To All! 

"74 MILLION YOUNG ADULTS WILL LEAD THE NEXT WAVE OF DEMAND!" 

I am excerpting these thoughts from an article recently written by Dave Liniger, Chairman of RE/MAX International in the Sept./Oct. issue of Real Estate Professional. “Overall economic recovery is likely to begin this year and continue through 2010. But we expect another foreclosure bubble in late 2010 and 2011 with unemployment rates still rising.” 

“After that, however, we are anticipating a sustained, healthy stretch of increasing home sales, values and homeownership rates.” These increases “will be based on a combination of pent-up demand and demographics. And the youngest group of adults, Generation Y, will provide much of the demand.” These young adults known as the Millennials, “are ages 14 to 29 now” and “comprise a block of 74 million potential buyers, nearly as many as the 80 million Baby Boomers born between 1946 and 1964.” Knowing the enormous affect the Baby Boomers have had on our society, “it’s fascinating to anticipate the impact of another wave that is almost as massive.” 

By comparison, the current household formation group of Generation X, born between 1965 and 1979) is only 48 million strong. Is this then another reason for our present over abundance of properties for sale?  

“Millennials are an interesting generation. As the children of Baby Boomers, they are on the verge of becoming the major consumer force. As a group they are less well off than their parents were at the same age and despite being burdened by steep college loans, higher prices for everyday goods and an uncertain job market, they tend to be extremely confident, mobile and positive about their futures. The oldest Millennials have already begun to enter the home buying market - drawn by the perfect storm of historically low interest rates, attractive prices and the $8,000 first-time buyer tax credit”. 

We see the pent-up demand locally almost daily in our Real Estate career. Many Baby Boomers who no longer need the large home have hunkered down and put off retirement and moving plans because they have lost 40% of their 401(k)s and a large portion of their home equity. Generation Y couples who because of the economy are content with renting or living with parents until their careers are more certain. Gen X families who have outgrown their homes but have to delay moves because of uncertain employment. . “Eventually,” Dave states, “in four years or so, all of these groups will feel secure enough to take the next step.” Until then the market we have locally is our new normal. 

Liniger continues “In 4 or 5 years the older Boomers, for instance, will come to grips with their partial financial recoveries and begin to make the moves they have delayed. But instead of heading for Florida or Arizona, most of them – perhaps 85% - will downsize locally and stay closer to their children, grandchildren and friends. Interestingly, many will move into urban or new-urban condos within walking distance of restaurants, theaters and stores – the types of homes Gen Xers and Millennials will be leaving as they become parents.” I could not have said it better myself! 

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Ken has published hundreds of weekly articles in The Avon Lake Press and has taken the time to do this as a service to his community over the past few years. We hope you find these articles interesting.

01 - 10 Good Reasons to Buy a Home Now!
02 - 100% Satisfaction Guaranteed
03 - Accentuating the Positive
04 - Anybody Ready for a Second Home?
05 - Best Home Improvement Projects
06 - Buyers Should Have Home Inspections
07 - Buyers' Earnest Monies
08 - Choosing Which House to Purchase
09 - Comparing Apples to Apples!
10 - Cut Out the Middle Man
11 - Cyberspace is Cool
12 - Decided on a home to buy? Don't worry,
13 - Details! Details! Details!
14 - Do Not Pay Those Extra Real Estate Fees
15 - Do You Have Money to Burn?
16 - First Impressions Count!
17 - Foundation Problems
18 - Give The Contract to the "Highest" Bidder
19 - Have You Decided to Move Out?
20 - Home Maintenance Tips
21 - Home Maintenance Tips for Winter
22 - How Long Will it Take to Sell Your Home?
23 - How Does the Internet Help Sell Homes?
24 - How to Know a Certified Mold Inspector
25 - Six Reasons Your Home is Not Selling
26 - The Holidays are Warmer in Your Own Home
27 - The Importance of the Title Company
28 - Why Won't My Home Sell?
29 - You Have Accepted an Offer, Now What?
30 - You're Moving Into Your New Home-Finally!
31 - THE RECESSION IS OVER”, NOW WHAT? 

If there are any other topics that interest you, please feel free to contact us and we will be more than happy to send a recent article which covers that topic.