North American Property

The U.S. saw its biggest year-on-year house price rises since July 2006 in December 2012, according to Standard and Poor’s Case-Shiller Home Price Indices, released February this year.

The rise in prices across 20 U.S cities was 6.8%, and the national 1-year change was 7.3%.  That’s slightly over the 6.62% rise widely expected by economists.  The highest-performing city was Phoenix, Arizona, posting a 23% 1-year increase, while the poorest performers were Chicago, at 2.2%, and New York, which saw a 0.5% fall in property prices.  That compares with a growth rate for the economy as a whole of around 2%.

Unlike the year-on-year rise, which was led by Phoenix, the month-on-month rise in house prices was led by Las Vegas and Los Angeles.  The final quarter of 2012 saw prices fall by 0.3% from the previous quarter, but still 7.3% above their fourth-quarter 2011 figures.  However, the year-on-year figures are a better indicator of trends in prices, according to a panel of economists that includes Karl Case and Robert Shiller, the economists who came up with the Case-Shiller index.  ‘As of the fourth quarter of 2012,’ says Standard and Poor’s press release, ‘average home prices across the United States are back at their Autumn 2003 levels.’

Overall, ‘home prices ended 2012 with solid gains,’ says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices.  ‘Housing and residential construction led the economy in the 2012 fourth quarter,’ Mr. Blitzer went on.  Purchases of previously-owned homes rose in January even as depleted inventories restrained further improvement.  The National Association of Realtors reported last week that about 4.66m existing homes were sold last year, the highest figure since 2007.

Not everyone agrees that it’s a ‘real and sustainable recovery,’ though, in the words of one doubter, Quinn W. Eddins, Director of Research at RadarLogic, a data and analytics business.  Mr. Edins says he expects home prices to decline temporarily this year, as the rise in supply caused by the increase in prices last year tilts the market back towards oversupply.  ‘Home prices are likely to follow such a saw-tooth pattern form a number of years, until consumer demand increases and inventories of distressed homes return to historical norms,’ Mr. Eddins writes, referencing his belief that job growth and rising consumer confidence are not playing a sufficient part in the housing market.

It’s possible to self-inflate a housing market for a while, with construction and sales driving each other without input from the wider economy, though it usually ends in disaster.  And sometimes even city-wide statistics can disguise rises in prices at one end of the market while the rest founders.  We’ve seen recent examples of a two-tier housing recovery in the USA, when luxury properties recover or even boom while foreclosures rise.  But that isn’t happening here.

Borrowing costs, though they have risen slightly, are still at near-record lows and gains in employment are fuelling demand.  Property values are rising as foreclosures fall and the number of houses on the market is also decreasing, indicating a general recovery in the market.

It’s not local to one area, either.  ‘The key here,’ says Brian Jones, a senior US economist at Societe Generale in New York, ‘is it’s not as if we’re getting all the juice from one area, it’s broadly based across the country.’  Mr. Jones correctly predicted the rate of rise over 2012.  He goes on to explain, ‘rates are low, prices are attractive, so affordability is high, and the labor market is gradually healing as well.’ He goes on to offer this advice: ‘If you were in the market to buy a home, now it’s a good time.’

Photo credits: Dean via Flickr

Florida Condos on Sunlit Harbour Island

A decade ago, Florida was a hotspot in the US-wide housing market furnace. Across the country house prices rocketed but Florida saw one of the sharpest rises nationwide.  Ten years later, the aftermath of the 2008 meltdown has seen Florida’s foreclosure rate top out above even Nevada.  While the housing market nationwide has become a rare economic bright spot, Florida is still recovering.

The foreclosure rate across the US as a whole seems to have peaked in 2010 and has since begun to fall even in hard-hit Nevada.  But in Florida it continues to rise.  Florida cities account for eight of the top 20 metro areas for foreclosures.  The Orlando-Kissimmee, Lakeland, Jacksonville, Tampa-St. Petersburg and Melbourne areas of Florida all have at least 28 months’ worth of foreclosed properties for sale and foreclosures account for at least 24% of all sales.  Most tellingly, foreclosure activity increased at least 50% last year.  And in the Palm Bay-Melbourne-Titusville metro area, tipped by foreclosure tracking firm RealtyTrac to be the best place to buy foreclosures in 2013, foreclosure activity rose 308%.

All this hasn’t necessarily resulted in a cheaper market on the ground.  As prices have fallen and a spate of vacation homes has hit the market, there has been a return to home flipping, in which developers buy up properties cheap and sell them for a quick profit after carrying out improvements.  Over a year ago, Warren Buffet said that family houses were ‘as attractive an investment as you can make,’ and RealtyTrac says plenty of companies and individuals have been following his advice.  During the same period that foreclosure activity roles 50%, flipping activity rose 25% as giants of the industry like the Arizona-based Colony American Homes bought up housing and resold it, on average for a $29k profit per property.  Many of the homes are being bought to be rented until prices rise, when their equity can be realized by sale.  In the meantime they’re helping to improve the housing markets across Florida:

The slow rate of foreclosure proceedings is partly to blame for the explosion in foreclosures.  Some cases spend four years going through the system to foreclosure.  In fact, there’s a proposal going through the State Legislature that would give lenders only one year, instead of the current five, to pursue a judgement against a homeowner in foreclosure cases.  And since Florida contains five of the ten places named by RealtyTrac as the foremost places in the US to buy foreclosed property, it sounds like the sort of measure calculated to be popular with the banks that own the properties.

However, the proposal, HB 87, would require that the banks came to foreclosure cases with all their paperwork in order.  ‘We’re telling the lenders, don’t bother filing the complaint unless you’ve got it right,’ says Rep. Kathleen Passidomo, R-Naples.  ‘It’s got to be done right.’   The bill passed the House Civil Justice Subcommittee by a 10-3 vote.

Many banks see this requirement as making the proposal work against them.  That’s because many homes have been bought by other banks since being leased or sold and the deeds, promissory notes and other paperwork can be scattered to different institutions across the country.

Amidst the arguments over HB 87, the legal fights over individual foreclosures and the mass corporate buy-ups, is there room for a small investor or purchaser?  Yes, but it’s a more complicated and competitive market than a cursory glance would suggest, for the reasons we’ve gone over.  Anthony Askowitz, a broker with RE/MAX Advance Realty II in Miami, FL, elaborates: ‘The inventory of the foreclosures market is very low.  It’s highly competitive for a foreclosure or a property put out as a quote ‘good deal’.  Multiple offers is the norm.’

Photo credits: Matthew Paulson via Flickr

Hurricane SandyL Beach 92nd Street between Shorefront Parkway & Holland Ave

Hurricane Sandy has the undesirable distinction of being one of the ten most expensive hurricanes in US history.  In the days before Sandy impacted, it was forecast to be ‘large, slow-moving and no doubt very costly.’  While it wasn’t anything like as destructive as Katrina, which cost $125bn by some estimates, Sandy is expected to cost upwards of $50bn in damage and hundreds of thousands of homeowners are expected to file insurance claims for flood and wind damage, according to the Consumer Federation of America.  Whole blocks of property were totally destroyed, the subway was knee-deep in water and even the New York Stock Exchange was in the dark, closed by the weather for two days running, for the first time ever.

The focal points of the damage done by Sandy are sadly apparent from photos and news reports that show rides from Rockaway Beach floating in the sea, beachfront housing levelled and Breezy Point, in Queens, tragically destroyed.  Joe Sitt, who owns property across New York, said in an interview for Fox News that many of his properties in New York were severely damaged.

Some analysts think Sandy will act as a drag on the American housing market.  Lawrence Yun, chief economist of the National Association of Realtors, is one of them: ‘this will definitely create a negative in the short term,’ he says.  ‘The bottom line is we clearly anticipate a slowdown, but it will be temporary.’

Yun expects a regional drop along the East Coast, a ‘noticeable, measureable impact’ large enough to pull the national sales statistics down from November onward.  Pending home sales will be delayed or in some cases collapse altogether, sellers will take damaged properties off the market and buyers will hold off making purchases.

The immediate effects on the wider economy involved the Nasdaq index falling by 0.58% and the Dow Jones losing 32.72 points during Wall Street’s closure, and there is to be some support for those whose homes have been damaged.  Two of the country’s biggest mortgage lenders €“ both bought out by the government in 2008 have pledged to offer help to those borrowers who live in designated disaster areas.  Freddie Mac and Fannie Mae said they ‘strongly encouraged’ servicers to help affected borrowers with Freddie Mac-owned homes by suspending foreclosure and eviction proceedings, as well as late fees, for up to 12 months.  The mortgage giants also asked their servicers not to report forbearance or delinquency caused by the disaster.

While some experts propose a downturn in the housing market as a result of Sandy, others point up the economic effects of the inevitable rebuilding program.  As Chris Christie told journalists that ‘we’ll rebuild it – no doubt in my mind,’ contracts for lumber futures on the Chicago Mercantile Exchange rose to their highest permitted level, and remained there for the rest of the day as investors sought to capitalise on the upcoming spike in demand for building materials.

However, the boost for the construction industry is only forecast: the property damage and weakening of infrastructure is here already, and consumer spending is lowered and likely to remain so.  As Stephen East, an analyst with International Strategy and Investment Group in Saint Charles, Missouri, remarks, ‘it will take prospects in the region a couple of weeks for home purchases to return to the forefront of buyers’ minds.’

The boom for construction might have an unexpected benefactor though; the state government, responding to descriptions of the event as a ‘wake-up call,’ is considering building flood defences or levees, bringing federal money into the state construction sector to the tune of $29bn.


Chinese property investors does not show the same interest in the US property market as before

The stream of foreign buyers that seemed to be filling the empty reservoirs of the US property market has dried up, according to Real Estate Economy Watch.  Just a few short weeks ago, in August of this year, the foreign buyer was hailed as the saviour of the flaccid US property market.  Prices rose as incomes stagnated, but the property sector was able to actually begin giving buoyancy to the economy as a whole, by employing realtors and construction industry workers as the sector expanded, apparently in a vacuum.

In fact, the missing demand to fuel this expansion was coming from overseas.  US property is desirable as habitation as well as for investment purposes and prices and the dollar have fallen together.  As a result, Europeans, Asians and Latin Americans were inflating the US market as recently as June of this year.  A key feature of this phenomenon was the number of Asian buyers, particularly Chinese, as a newly-confident Chinese upper middle class rides the wave of Chinese economic expansion.

However, the stream of foreign buyers appears to have run dry.  According to real estate website Trulia, ‘investors want to buy when prices are at their bottom, but they’ll start to lose interest when prices rise 15%.’  Even in the key areas of focus for foreign investment, such as Florida, interest from foreign buyers has declined a bitter blow for the sunshine state that has seen interest from buyers decline over the last six years.  Foreign buyers have reduced in number over the last year, according to the National Association of Realtors: sales to foreigners went down 6% between June 2011 and June 2012.  That’s bad news for the rest of the US market, since Florida represents a significant proportion of all foreign real estate investment: 26% of all foreign buyers so far this year.

But it’s particularly bad news for Floridian sellers. The state relies heavily on tourism for its economic well-being, and foreigners were paying well over the odds and in cash.  Some 62% of all sales to foreigners were paid for in cash, and foreign buyers paid over the median price by a substantial margin.  The average US home sells for $167k, and in Florida that figure is more like $125k.  But foreign buyers of Florida properties were willing to pay an average of $195k – until they stopped.

Some experts pin the blame on the decline of the Euro against the dollar, part of a readjustment process as the effects of the financial crisis make themselves felt across the Eurozone after spreading there from the US.  However, other forces may be at work.  Chinese investors may prefer to buy closer to home, in Malaysia, where there is a large Chinese population, and in Hong Kong, where 40% of recent luxury home sales were to mainland Chinese.

Alongside the canniness of the Chinese investors whose cash made up 11% of the foreign-buyer market are the Canadian investors whose domestic market is cooling right now, and the US market in homes needs to be viewed within the economy as a whole.  There has been a slight jump in mortgage forclosures (though still fewer than a year ago) and unemployment has risen slightly over a similar period.  The rest of the US economy, in short, is suffering from a general failure to rise, and the leavening of a new Federal stimulus packaging is doing more for Hong Kong property prices than US wages and employment figures.

A deflating housing market could leave the US with nothing better to look forward to than Standard & Poor’s appropriately gloomy predictions of 2.2% economic growth in 2012 and 1.8% in 2013.

Housing Bubble!

The global property markets are imploding, and fast. The strain that first found its footing in the U.S has now truly gone viral. From Dubai to Denmark, developers have been left reeling, while national exchequers struggle to hold ground. So, how did the housing market bring the greater world economy to its knees? What could have possibly happened that real estate the world over saw $5.4 trillion in losses over the course of one single year alone (2008-2009)? We here present a simple, 8-point lowdown on what really got that demolition ball rolling.

Chicago is without doubt one of the greatest cities in the US and the world. In some ways like the UK’s Brighton, Chicago is unique, with its own systems, unwritten codes, and ways of doing things. Like almost every city, street, town, suburb and person in America, Chicago has lost some of its sheen to the financial crisis and cuts in public spending. But International Property Developers Inc plan on restoring a huge chunk of central Chicago to its former glory. They have just (July 21) filed plans for a new $3.5 billion development, which will include the tallest tower in the US.

Florida’s real estate market is about to get messy! That sounds like something the voiceover for a move trailer would say but it is actually happening in real life. We all know that Florida has one of the biggest foreclosure levels in America — which means in the world as well –, but few would have expected the problem to still be getting worse almost 5 years into the crisis.

The South Florida property market is in a State of Limbo. At the end of last year foreclosures fell to their lowest in three years, but not because less people lost the ability to pay their mortgage, but because the banks are under intense scrutiny over their foreclosure procedures, as a robo-signing scandal lead to more dodgy practices and irregularities being uncovered.

The consensus of opinion is that US house prices will continue to fall this year, by a minimum of 5%. A slew of predictions for a down market have followed the recent report by Corelogic showing that US home prices fell 5.3% year on year in November, the fourth consecutive monthly fall and also acceleration on the 3.4% fall seen in October the report said.

IHS Global Insight is predicting a 5-7% fall for this year, in their predictions they point out that the tax credits lead to false hopes of a market in recovery which have since been proven so.

A sentiment echoed by Corelogic. Rather than draw many new buyers into the market, the credits “just pulled sales forward,” said Sam Khater, CoreLogic senior economist. The higher rate of decline in prices in November from October underscores the big challenges the market faces with recovery, he says.

Moody’s Analytics also highlighted the lull after the tax credits, further saying that the credits precipitated a double dip in the housing market.

The economy avoided a double-dip recession, but “Housing is double dipping,” said Moody’s economist Mark Zandi. Zandi also predicted a 5% fall but said it will have happened by midyear.

By the time prices hit bottom, the housing crash will have lasted five years and driven prices 35% off their 2006 peak, he says.

The Corelogic report showed prices rising in 6 states, New York, Wyoming, Indiana, Vermont, North Dakota and Maine. Maine’s 8.6% growth was by far the largest, with North Dakota a distant second at 4.4%.

Zillow, the second largest US property portal paints an even more dire picture. According to the firm, which does not count repossessed sales, the 5.1% fall in November represented the 53rd consecutive fall and brings prices down to 2003 levels.

Zillow expects sustained declines until late 2011. Even then, “The bottom will be very long and rocky,” says Zillow chief economist Stan Humphries.