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Virtuosity
Sometimes our timing is uncanny. Or perhaps
it is because we present so many opinions, a few coincidences are likely to
happen. Regardless of the reason, a few weeks ago we started focusing on
the elusive virtuous cycle. We concluded that the cycle must start with
real estate and we indicated that there were signs that this might finally
be taking place. Well, a few days ago, this quote appeared in a Wharton
publication: Is this the start of the long-awaited and elusive housing
recovery -- one that would bring a stronger economy overall? Or is the
market just taunting us as it bumps along the bottom? 'It's for real. This
is absolutely for real,' says Susan Wachter, professor of real estate at
Wharton. The market, she says, is poised to enter a 'virtuous cycle' where
positive trends will spur more positive trends. 'This market recovery will
continue,' she added. (See more from article in Real Estate News
below.)
That is not to say that one person's opinion
solidifies the deal. However, it appears that others are taking notice of
the rebound that is taking shape. If we want confidence, positive remarks
in the media from experts such as Susan Wachter are very important --
certainly more important than our comments. And we certainly do need
additional confidence as we build another leg in the virtuous cycle. The
employment report released on Friday showed that the recovery is continuing
but we could still use more momentum. The drop in the unemployment rate
from a high of just under 10% to 7.8% in a period of just under two years
is significant. The road to an even lower unemployment rate must be
underpinned by a stronger real estate recovery as part of the virtuous
cycle. Perhaps it has already begun.
By the less-demanding standards of the past
few years, the latest housing figures look pretty good. On September
25, the Standard & Poor’s Case-Shiller Home Price Index showed a 1.2%
price gain in July compared to a year earlier. Prices have risen for three
consecutive months. The National Association of Realtors (NAR) reported on
September 26 that sales of existing homes had risen by 9.3% in August,
compared to a year earlier, and that the median price of existing homes
sold was up 9.5% over the past year. NAR and Case-Shiller use different
methodologies. For the 12 months ended in July, sales of newly constructed
homes were up about 25%, though the total was still only about half of the
700,000 units considered healthy. Experts are especially impressed that
prices of the least-expensive third of homes lead the gains, going up a full
1% between June and July. Those homes had received the worst drubbing in
the recent housing market collapse. Is this the start of the long-awaited
and elusive housing recovery -- one that would bring a stronger economy
overall? Or is the market just taunting us as it bumps along the bottom?
'It's for real. This is absolutely for real,' says Susan Wachter, professor
of real estate at Wharton. The market, she says, is poised to enter a
'virtuous cycle' where positive trends will spur more positive trends.
'This market recovery will continue,' she says, predicting that rising
prices will prod potential buyers to buy before prices go up more. That
demand will nudge prices up, drawing in even more buyers. 'I have been
optimistic about this market for six months or a year,' she adds. Several
factors have combined to strengthen the market, Wachter says.
Extraordinarily low rates have allowed millions of homeowners to reduce
their monthly payments by refinancing. Moreover, Wachter notes,
unemployment, while still high at over 8%, is not rising, and fewer workers
feel the threat of layoffs. The stock market has been very strong, making
those with investments feel wealthier. Worries about a shadow supply are
easing. 'People are less likely to walk away when they see prices rising,'
she says. Source: Knowledge at Wharton
More than 20 million rental households spent
more than 30 percent of their income last year on rents. In fact, more than
half of those renters spent at least half their income on housing,
“severely burdening” their finances, according to Census data. Rents
have been on the rise the last few years as demand surges. In the past
seven years, median rent payments have soared nearly 20 percent from $728
to $871. Some markets have seen double-digit increases in rent in just the
last year, such as in cities like Houston, Seattle, and the San Francisco
Bay area where strong job markets are fueling high demand. 'More demand
with little new supply means rising rents and shrinking vacancies,' says
Jed Kolko, chief economist with the real estate Web site Trulia. Source:
USA Today
Investors have a new target in real estate: undeveloped
land. They're snatching up undeveloped land heavily discounted in
bankruptcy proceedings from developers and banks that foreclosed on the
builders once they ran out of money for their projects, Reuters
reports. The investors then resell the land for up to 20 percent or
more returns on their investment. Or, in a buy-and-hold strategy, the
investors partner with homebuilders to develop the land. 'We are
coming out of the mother of all housing cycles, and residential land is the
best way to play the ultimate recovery,' Michael Barr, a Paulson & Co.
portfolio manager, told Reuters. 'Land is the highest-returning component
of the homebuilding equation.' Investors find the most attractive land to
buy is a parcel that already has all the planning permissions in place to
start construction. Otherwise, the approval process for building on the
land from local and state agencies can be costly and timely. Source:
Reuters
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