Tag Archives: Real estate economics

Twin Cities Housing Market update. Week Ending Oct 08, 2011


Another great weekly housing market update from Minneapolis Area Association of Realtors.

We continue to grind away at a faster pace on our inventory.  This week’s year-over-year stats:

Change in New Listings:      -13%  

Change in Pending Sales:   +48.3%

Change in Inventory:            -21.0%

We are now down to 22,434 listings on the market.

View Full Weekly Market Update Report

 

 

 

 

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Sunday Morning Housing Market Chart


It’s Sunday Morning and being in real estate means today is a work day to be in Model homes, open houses or showings.

As I walked out to the driveway I noticed a great chart indicating our current housing market.

Housing Market

If you notice on the bottom of the chart represents the Buyers, and the top of the chart represents the inventory.

It’s going to a long day!  Fortunately for me only the bottom half of the tire is flat!  I’m a ‘cup is half full’ kind of guy..

Enjoy your Sunday….  I need to change a tire now.

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NAHB: October 2011 Improving Market Index


The National Association of Home Builders released their Improving Market Index.  This index was started a couple of months ago by NAHB and First American.  This index hasn’t hit upon the Twin Cities area yet, primarily because we are not an improving market yet…  I do want to keep an eye on this because eventually we will be showing up on this index, hopefully.

Here is a pretty good video explaining the latest index results from NAHB.  NAHB: October 2011 Improving Market Index.

Basically, the improving markets are in Energy Producing areas (a.k.a. oil drilling).  So this is further evidence our biggest struggle is jobs, not inventory.

 

click to enlarge

 

October 6, 2011 – The second edition of the National Association of Home Builders/ First American Improving Markets Index (IMI), released today, shows 23 individual housing markets now qualifying as “improving” under the new gauge’s parameters. This is nearly double the 12 housing markets that made the list last month.

The index reveals metropolitan areas that have shown improvement for at least six months in housing permits, employment and housing prices. The following metros were listed in October:

  • Alexandria, LA
  • Amarillo, TX
  • Anchorage, AK
  • Bismarck, ND
  • Casper, WY
  • Fairbanks, AK
  • Fayetteville, NC
  • Houma, LA
  • Iowa City, IA
  • Jonesboro, AR
  • Kankakee, IL
  • McAllen, TX
  • Midland, TX
  • New Orleans, LA
  • Odessa, TX
  • Pine Bluff, AR
  • Pittsburgh, PA
  • Sherman, TX
  • Sumter, SC
  • Waco, TX
  • Waterloo, IA
  • Wichita Falls, TX
  • Winston-Salem, NC

“Both the number and geographic diversity of improving housing markets expanded this month, with Iowa, Illinois and South Carolina all newly represented by one entry or more on the list,” said National Association of Home Builders (NAHB) Chairman Bob Nielsen, a home builder from Reno, Nev. “This is further evidence that, despite the tough conditions that persist in many cities, pockets of improvement are emerging in local housing markets across the country.”

 

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The Nation’s 11th Largest Mortgage lender is getting out of the business due to excessive regulations


Image representing MetLife as depicted in Crun...

Image via CrunchBase

WOW!  This puts things into perspective a bit.  We all complain about the banks on their underwriting and that they are “not lending” now.  I knew they were pummeled with new regulations but had no idea to what extent.

The nation’s 11th largest mortgage servicer and 13th largest mortgage originator is getting out of the business due to excessive regulations according to HousingWire.  If a company can walk away from a$115.9billion servicing business it has to be bad…

MetLife Bank, a division of insurer MetLife Inc. (MET: 31.75 0.00%), is selling the bank’s mortgage business, citing uncertainty in the marketplace and a regulatory environment that requires excessive resources.

…In 2010, MetLife Home Loans ranked as the 11th largest mortgage servicer in the U.S., with its servicing business valued at $115.9 billion in the fourth quarter. The company also ranked 13th on the list of mortgage originators, holding 1.4% of the market and originating roughly $22 billion in mortgages last year.

Read Full Article

 

This not the direction we should be heading in to improve the housing market.  Having more banks lending would be helpful, not banks walking away from the business…

 

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Twin Cities Metro Area’s Pent Up Demand, Census Demographics projecting future housing demand.


After reading the National Association of Realtor’s article about the 15 to 19 age bracket and their housing needs, in my previous post.  It got me to think about our Region’s demographics and I was curious about some “ballpark” estimates on future housing demand in the Twin Cities area.

What kind of numbers are we talking about for the 15 to 19 age group and the 20 to 24 age group?  Here is the 2010 Census Chart on Age/Sex of the 7 County Twin Cities Region.

The 20 to 24 and the 25 to 29 age groups have been hit really hard by unemployment and have largely been left out of the housing market.  Let’s run some assumptions based on the 15 to 19 and 20 to 24 age groups.

Here are the numbers broken down for the age groups.

 


The 15 to 19 age group consists of 193,289 people in the 2010 Census for the Twin Cities Metro area.  We can’t assume that all of them will need housing; some will relocate out of State, some will get married, some will choose renting over owning and some will stay home with Mom and Dad.  So I am going to run with 50% of them will need housing,  it is just an arbitrary percentage I pulled out of thin air – maybe it is too high or too low but it is a nice round number.   So 50% of 193,280 of the 15 to 19 age group would be 96,644 housing units.  This will be over a period of let’s say 10 years for easy math and enough time for those age groups to enter the housing market, they would need  9,664 housing units per year.

If we look at the 20 to 24 age groups at 190,135 people, using the same 50% ratio we come up with 95,067.  Over the next 10 years would be 9,506 housing unit per year.

Looking at the 25 to 29 age group gets a little trickier to guess the numbers.  This is the age group that should begin to enter the housing market but with the economy many in this age group have been stuck.  If we were to run the same ratios we would come up with 110,383 housing units and over 10 years would be 11,038 per year.  I don’t really like those ratios on this age group, because some have entered the housing market by taking advantage of the First Time Homebuyer Tax Credit.  So for these purposes I am going to leave them out of this projection even though there is a fairly large number here that will enter the housing market.

So just looking at people age 15 to 24 we have a grand total of 191,712 housing units or 19,171 housing units a year.  Considering we have approx 24,000 housing units for sale, this could put a lot of pressure on the supply / demand ratio.   Remember, we have already accounted for the marriages and moving out the region in these figures. We haven’t taken into account the deaths and migration in this ballpark estimate, so it is not a figure I would use to do any serious forecasting with.

This estimate does however show us the “Pent Up Demand” that needs to be un-lodged , the only way to un-lodge this pent-up demand is to get these age groups Jobs.

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Housing market hit bottom: former RealtyTrac exec. Catfish Recovery


Line art drawing of a Catfish

Image via Wikipedia, "our new housing market mascot"

Housing market hit bottom: former RealtyTrac exec.

Well, it’s official, we have hit bottom!  At least according to Rick Sharga, former RealtyTrac exec.

The U.S. housing market hit bottom this year and will remain flat until 2014, when it will start to slowly recover, said Rick Sharga, an executive vice president withCarrington Mortgage Holdings.

“We’re looking at a catfish recovery,” he told attendees at the Asian Real Estate Association of America conference in San Francisco Friday, saying the market will bump along the bottom for some time before starting to revive.

More than a million foreclosure actions that should have taken place this year have not yet moved forward, and that delay pushes a resolution of the housing market’s problems into next year and beyond, he said, citing data from RealtyTrac, where Sharga served as a senior vice presidentuntil this week.

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The article goes on to mention the shadow inventory problem holding recovery back along with anemic economic growth.

Of all the predictions so far, this sounds to me like the most realistic one.  But who knows, it is anyone’s guess at this point.

I do like his term “Catfish Recovery”, bumping along the bottom.  There is nothing quite like the ‘down home’ ‘common sense’ phrases..

 

 

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Operation Twist, and our housing market: Pretzel Logic


Pretzel

Image via Wikipedia

 Here we go again.. 

Operation Twist has been launched by the Federal Reserve.  The idea is the Federal Reserve will buy long-term T-Bills, $400 billion worth.  The theory is it will lower the long-term interest rates.  This is also supposed to give banks cash balances.  Sounds good, except it has been tried in the past and did not work.

The term “Operation Twist” comes from the early 1960s, when the Fed tried something similar. (It’s named for the Chubby Checker hit.) It may have had a small effect — one recent studyfound that it drove down the interest rate on Treasury bonds by 0.15 percentage points. But the effect on mortgage rates was smaller, and the effect on corporate borrowing costs was tiny.

Read Article from NPR

One problem, okay one of many problems…  Mortgage Interest Rates are already at record low levels.  This is not the problem with the housing market.  The housing market is suffering because of the high unemployment and underemployment.  You may argue: it is because of the foreclosures!  Well, sure – why are people going into foreclosure??  Maybe because of job loss and under-employment??

 I don’t care if mortgage rates are 2% or 4%, if  you are unemployed you still won’t buy a house!  

Let’s phrase this differently, someone will buy a house at 12% interest rate if they have a job before someone buys a house at 3% interest rate that has no job.

How did the market respond to this news?  Take a look at the Dow Jones chart for the day and see if you can identify what time the news was announced:

Welcome to the Lost Decade

I do hope this works, but I am not optimistic on this strategy at all…

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Households Doubling Up, this is the “pent-up demand” for housing.


The “pent-up demand” for housing is stuck right now with high unemployment.  If we can get jobs creation going, allowing the younger age group to move out and create new households, the housing market will start to hum along.

These “doubled-up” households are defined as those that include at least one “additional” adult – in other words, a person 18 or older who is not enrolled in school and is not the householder, spouse or cohabiting partner of the householder.

Young adults were especially hard-hit, with 5.9 million people ages 25 to 34 living in their parents’ household in 2011, up from 4.7 million before the recession. That left 14.2 percent of young adults living in their parents’ households in March 2011, up more than two percentage points over the period.

Read Full Census Article

This age group that is now stuck living with their parents is what the market needs back in the workforce and buying houses.  There is a potential for this to come down the pipeline in a wave, creating a shortage of housing believe it or not.  It all depends on how we pull out of this recession/or recovery.

For a good analysis of this Census  report, check out Calculated Risk 

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More than 22% of mortgages still underwater


This is news, but not really.  I am actually surprised it is not higher.  With the values dropping as far as they have, it is surprising to me that more people don’t owe more than their home is worth right now.

I do believe that with inflation, improved employment that this will self correct over time.  The big question is how long will it take to correct?  I have heard guess-ta-mates anywhere from 3 to 12 years out.  My guess-ta-mate, well that is one of the purposes of my blog…  it depends on the job situation – if our economy turns around and people get good paying jobs again, we will recover quickly.  If this economy lingers, it will take much longer.  How’s that for stating the obvious?  I am trying track the factors that influence our housing market on this blog, so far I have not discovered a crystal ball that gives an exact date.  If you can predict the jobs recovery, you can predict the housing market recovery…

Nearly 11 million properties, roughly 22.5% of all U.S. homes, were worth less than the underlying mortgage in the second quarter, according to CoreLogic.

Read Full Article from Housing Wire

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Twin Cities Real Estate Market Pent up Demand


Giggly, smiling, surprised, 4 friends watching...

Image by Wonderlane via Flickr

We have all heard about the “pent up demand” for housing.  What exactly is that?  Quite simply, it is the younger generation that have not been able to enter the workforce because 14.9% unemployment rate and underemployment.  It is possible when we get through this “recession” or “recovery” we could see a shortage of housing relatively quickly.  It will likely start with the “starter home” price ranges, which then starts a domino effect up the price ranges.  The housing market is basically stuck until this age group gets steady employment.  To which I might say “Get a Job!”, like an old codger…   They are in a tough spot, as we all are.

Back to Jobs, Jobs, Jobs.

Read Full Article from Star Trib.

For most young adults, the only jobs market they know is the one shaped by the Great Recession. Unemployment for 20- to 24-year-olds is about 14.9 percent, still well above the national average of 9.1 percent. That doesn’t allow young workers to think much about the job they want, just the job they can get. And if they live on their own, it’s often with roommates.

The economic impact extends well beyond mom and dad’s wallet. With young adults struggling to live independently, household spending is diminished as fewer new households are being created. As a result, less need exists for furniture, appliances and a variety of services.

“Job formation helps determine household formation,” said Maury Harris, chief U.S. economist for UBS Securities.

From March 2009 to March 2010, the number of new households in the United States was the lowest on record. The plight of younger workers played a large part in the downturn of households, as families were forced to consolidate.

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