There’s been some interesting news on the economic front recently:
The Good:
Today the stock market recouped its losses for 2009 and actually turned positive for the year, apparently primarily due to early reports that stress tests of major banks may offer more detail and less bad news than originally expected.
This sent the S.&P.500 up 3.4% today, or .44% for the year. The Nasdaq rose 2.5% today, and is up 11.8% for the year.
Going by what I read and what I see locally, I expect April to be a big month for homes going off market, and May should be a strong one for closings. Every real estate agent I talk to is far busier than they were six weeks ago, as am I.
The Middling:
I spoke to an agent yesterday who said that Warren Buffet had been on TV a day or so before and said we were at the bottom of the housing market. When I actually checked the article it turns out he thinks that we’re moving through housing inventory faster than we’re producing it, and that therefore we are on our way to prices leveling off (but not there yet).
He points out that about 1.3 million households are created each year in the U.S., and new housing starts had been running at 2 million a year. Now there are about 500,000 new housing starts per year, so we should be absorbing excess inventory at the rate of 700,000 to 800,000 units per year.
The Not so Hot
The New York Times ran an article today about how there are growing concerns about the U.S. public debt, which is projected to rise from 41% of Gross Domestic Product in 2008 to 54% in 2011.
The concern is that government borrowing my edge out private investment and cause interest rates to rise, and also that the interest obligations may become unsustainable. In addition, China (which has lent huge sums to the U.S.) is beginning to show concern about the U.S.’s financial health. I’m tempted to mention that since they started the whole bird flu thing they should maybe give us a break in the health department, but something tells me that wouldn’t go too far.
Bottom Line
As I mentioned before, I don’t necessarily think we’re at the bottom of the market, and neither do the buyers I’m working with – but with these interest rates and huge price drops it’s an incredibly friendly buying environment for people looking for a home they mean to stay in for a while.
The New York Times published an interesting interactive graph a few days ago, showing home prices compared to median incomes in major U.S. cities since 1979.
Moving your computer mouse over the lines (click on the image above to go the the live New York Times graphic) shows the information for each line as you pass over it.
Where are home prices headed?
On the one hand, local real estate has been surging in the month of April, as I’ve mentioned in previous posts. Extremely low interest rates, the First-Time Home Buyer Credit and home prices that are now nearly 20% lower than a year and a half ago make it a much more buyer-friendly market. The first-time buyer price ranges are especially active.
On the other hand, we’re seeing some economic news that I think is going to take some time to filter down. The IMF recently revised its global economic forecast: in January it predicted that world output would increase by .5% in 2009, and it now expects a 1.3% global decrease. Stories like this, along with other more U.S.-based news makes me think we’re not necessarily at the beginning of the end yet.
The home buyers I’m working with now don’t necessarily think we’re at the bottom of the market, but are taking advantage of hefty price drops and prime lending conditions to purchase homes they plan to stay in for a while. I think that’s a healthy way to approach this market.
Home prices in Seattle
The New York Times has a neat interactive graphic today showing home prices in selected U.S. cities since 2000 (based on the Case-Shiller numbers.)
The two graph lines compare prices in the selected city to the 20-city average. It’s interesting to click through and see how the graph lines change depending on how each city fared during the home price escalations and subsequent decreases.
For example, compare the graph showing Seattle home prices to the graph below, showing home prices in Las Vegas.
Home prices in Las Vegas
The yearly Cost vs. Value report is now out, showing the cost recouped for various remodel projects throughout the nation.
Here’s the page with the Seattle Cost vs. Value data, or you can link to the national Cost vs. Value page here.
Projects with some of the greatest returns included siding replacement, adding a wood deck, replacing windows, and minor kitchen and bathroom remodels.
However, please take note! Regarding any of the projects in the report, PLEASE check with me before investing a significant sum of money. For example, replacing siding with new vinyl siding is listed as a high-recouping mid-range project, but from experience I know that in the Seattle area many home buyers are not wild about vinyl, much preferring wood or wood-like cement composites like Hardiplank.
Taking a look at the trends, the average percent of cost recouped for all projects peaked at 86.7% in 2005, dropped to 70.0% by 2007 and then declined just slightly more in 2008, to 67.3%. And there’s good news for Seattle area homeowners – in the Pacific region the average cost recouped through remodeling is 14.8% higher than the rest of the country.
It’s interesting to check out the graph showing that last statistic, it’s the second graph on this 2008 Cost vs. Value Trends page.
The Wall Street Journal has an article pointing out that over the past year there has been an upsurge in companies who offer to help homeowners negotiate lower mortgage payments – in exchange for a fee, when these services are available for free.
The buzz over the new regulations basically amounts to a commercial for their services, so here’s a reminder from the Federal Reserve, mentioned in the article:
Work only with HUD-approved nonprofit counselors. (See www.hud.gov.)
Don’t agree to pay a fee before you are provided with the promised service.
Beware of people offering “guaranteed” results.
Don’t sign blank forms or documents you haven’t read.
The article suggests first calling the loan servicer for help, and if that does not work, to contact the mortgage industry’s “Hope Hotline” at 888-995-4673 or www.hopenow.com.
The New York Times posted a pretty hair-raising article today about a homeowner who is being asked by the FDIC to pay $150,000 of debt racked up by the company that allegedly deceived her.
For the record, this is not someone who used her house as a credit card. She’s more of a salt-of-the-earth type of homeowner, according to the article (raised four foster children, used her life savings to buy her first home 10 years ago, and is now retired and in her late 60′s.)
When she fell behind on mortgage payments in 2005 she turned to Home Savers Consulting for help, and they allegedly secretly sold her home to a straw buyer who had good enough credit to ‘cash out’ to the tune of $150,000 of equity.
The straw buyer later had a change of heart, returned the deed and wrote an affidavit admitting everything. From the New York Times article:
“She did not at any time believe that ownership of the subject property passed to me,” Ms. Millett stated in the affidavit, “and her intent was never to relinquish ownership.”
Which seems like a pretty good case for proving fraud. The FDIC (which took over IndyMac) is saying they have no proof of fraud, and that IndyMac Bank was not involved – but it turns out that an IndyMac representative was present while the deed was being turned over to the straw buyer.
What comes up repeatedly in these kinds of stories is how often people on the inside saw problems and made complaints, and yet nothing was done. That seems certain to change. When all this mess is over with I think we’ll be a better country, and real estate agents will be working in a better industry. Too bad so many people have to go through such heartache in the process.
The February unemployment numbers are out and, as expected, it’s not a very pretty picture, with the unemployment rate now at 8.1%.
The Wall Street Journal has an interesting overview that takes into account a number of different opinions. Their article is a summary of quotes from over ten different economists reacting to today’s data. You can click here to read it.
The Puget Sound Business Journal just ran an article quoting Lawrence Yun, chief economist for the National Association of Realtors, explaining why he thought the Seattle area was not due for a housing crash similar to the one seen in some parts of California.
This makes sense, seeing as we didn’t have the enormous price run-ups that those areas did prior to the start of the market decline. I’ve linked to the article above, but here’s what struck me:
[click to continue…]
