Pending Home Sales Up 8.2% in May

http://online.wsj.com/article/SB10001424052702304450604576415671858911258.html?mod=WSJ_RealEstate_LeftTopNews
Original Post Date: June 29, 2011

By: Alan Zibel and Tom Barkley

WASHINGTON—The number of people who signed contracts to buy previously occupied homes in the U.S. rose last month, but was still low from a historical perspective, as the housing market remained a weak sector of the economy.

The National Association of Realtors’ seasonally adjusted index for pending sales of existing homes increased 8.2% on a monthly basis to a reading of 88.8, the industry group said Wednesday. It was the strongest monthly gain since last November.

Economists surveyed by Dow Jones Newswires had expected pending home sales would rise by 10.0% in May from an original April reading of 81.9. That month’s reading was revised up to 82.1.

The pending sales index for May was 13.4% above its level in May 2010, a month in which sales fell dramatically after the expiration of a federal tax credit.

“This solid gain in contract signings implies that home values in many localities are or will soon be stabilizing as inventories get absorbed at a faster pace,” said Lawrence Yun, NAR’s chief economist.

However, many economists caution that the housing market is a troublesome part of the economy. Foreclosures continue to depress home values and sales levels remain historically weak. Many housing markets face a backlog of foreclosed houses that have been delayed by banks’ difficulty processing paperwork used to seize properties.

Prices were up 0.7% in April when compared with March, according to the Standard & Poor’s/Case-Shiller 20-city index, a measure of home prices in large metropolitan areas. But after accounting for a typical pickup in prices at the start of the spring buying season, home prices were almost unchanged from March.

The pending-sales index tracks agreements to purchase homes and is based on pending sales of existing homes, including single-family homes and condominiums. A reading of 100 refers to the level of sales in 2001.

A sale is considered pending when the contract has been signed, but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

The index was up 12.9% in the West on a monthly basis and 10.5% in the Midwest. It rose 7.3% in the Northeast and 4.1% in the South.

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Pending California home sales rise slightly in May, Realtors group says

http://www.sacbee.com/2011/06/22/3718148/pending-california-home-sales.html
Original Post Date: June 22, 2011

By: Mark Glover

California’s mangled real estate market saw a sliver of promise Tuesday.

The California Association of Realtors said pending home sales statewide rose in May, the first year-over-year increase in 18 months.

CAR said its Pending Home Sales Index in May was 118.3, up 1.6 percent from April’s revised index of 116.4 and a 12 percent gain over May 2010.

The index is based on contracts signed in May. CAR considers pending home sales an indicator of future sales activity.

“May marked the first year-over-year increase in pending sales since November 2009 and the largest annual increase since August 2009,” said Beth L. Peerce, CAR president. “And as a result, annual sales for all of 2011 should match or exceed last year’s annual pace.”

However, like many statewide gauges of real estate, some areas are lagging.

In Sacramento County, for example, CAR said single-family distressed home sales comprised 65 percent of all sales in May, down from 67 percent in April but up from 62 percent in May last year.

By comparison, distressed home sales in Marin County comprised only 28 percent of sales in May. In San Diego County, it was 29 percent; in Humboldt County, 17 percent.

“Pending sales (statewide) are certainly a positive sign, but we’ve had a few false starts before,” said Kris Vogt, president of Coldwell Banker Residential Brokerage’s Sacramento-Tahoe region. ” … The good news is there’s more and more affordability and we’re seeing a little more confidence in buyers. We need to get more unit sales to get to a turnaround.”

Last week, CAR reported that the median sales price of existing single-family homes in Sacramento County in May was $168,200, compared with $170,270 in April and $191,430 in May last year.

Doug Covill, president of the Sacramento Association of Realtors, said a seasonal increase in sales is not a surprise but added, “I just feel like we’re going to have a bumpy road here for awhile.”

CAR said Tuesday that the share of all distressed property types sold statewide was unchanged in May from April’s 48 percent, but that it was up from 46 percent in May 2010.

Tuesday’s report also noted that 28 percent of distressed properties sold statewide in May were real estate-owned, unchanged from April but up from 26 percent in May last year.

The statewide share of short sales also was unchanged from April to May, standing at 19 percent. That was down from 20 percent in May 2010.

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Has Your Home Value Recovered?

http://www.smartmoney.com/spend/real-estate/has-your-home-value-recovered-1308588485550/
Original Post Date: June 20, 2011

By: David Crook

At first glance, you’re not likely to see a lot of similarities between stately Cambridge (population about 105,000) was already more than 200 years old when Denton (120,000) was founded in 1857. From the center of Cambridge, it’s an easy stroll across the Charles River into Boston. Denton, in contrast, sits where Interstate Highway 35 divides to the west, it’s 41 miles to Fort Worth; to the east, 39 miles to Dallas.

But both are college towns. Cambridge is well known as the home of Harvard University and the Massachusetts Institute of Technology. Denton has North Texas State University and Texas Woman’s University.

They have something else in common, too. Both have pretty much recovered from the five-year-and-counting housing recession. And both provide invaluable clues for those looking to decipher whether their own markets have seen the worst of the crisis.

According to a statistical analysis performed for The Wall Street Journal by the online real-estate information and search firm Zillow, home values in a handful of communities are where they were just before the most frenzied days of the real-estate bubble. Focusing on communities with sufficient sales activity to produce statistically valid value estimates, Zillow spotted 25 places that are within single-digit percentage points of their home-value peaks. (Zillow found no communities where values have surpassed their high-water marks.) Not bad considering that home values in some major metropolitan areas are at half their bubble-era peaks.

As a result, spotting the factors that have helped those communities get by may allow all homeowners to better gauge what’s going on where they live and what the future may hold for their home’s value.
Some words of caution.

First: Don’t look at these as housing-market “winners,” and don’t go looking for new places where you can score a killing. That’s the thinking that got much of the country in trouble in the first place. Housing isn’t an investment like stocks or bonds and shouldn’t be approached that way.

Second: Although many of the areas have certain traits in common, most are just nice places to live, places where anyone might want to work and raise a family. Each is special in its own right.

Finally, the biggest reason that most are surviving the downturn is because they never experienced the huge price runups that Florida, Nevada or California did in the first place.

In Denton, Zillow estimates values are down 7.4% from their peak, while values are down about 8.6% in Cambridge. That’s about where prices stood in 2004 in both towns. In contrast, the latest Case-Shiller Home Price Index indicates national prices are at 2002 levels.

So what should you look for if you are thinking of selling your home or buying a new one? What does a healthy real-estate market look like today?

Here are three big factors to look for. If your community shares any of these traits, you may already be on the rebound.
Employment

It’s the oldest joke in real estate, but with a new punch line:

Q: What are the three most important things to consider when buying a house?

A: Jobs. Jobs. Jobs.

Clearly, the No. 1 factor in determining whether a community has passed through the worst of the housing debacle is its current state of employment. There has always been a connection between the local jobs picture and the local real-estate market, but it’s even greater today.

The official U.S. unemployment rate was still a very high 9.2% as the prime home-shopping season began in March. Denton County’s unemployment rate was 7.4% in March way up from before the financial crisis but lower than the rate for all of Texas and nearly two points below the national rate. Unemployment in Cambridge’s Middlesex County is 2 percentage points below the U.S. average.

Indeed, many of the communities that turned up in the Zillow analysis have big recession-insulated employers like Cambridge’s and Denton’s universities.

Look at North Carolina, where three communities appear on the Zillow list. Although North Carolina’s unemployment rate is higher than the national average, all three communities are lower than the state rate. Jacksonville, where values are just 0.1% below their peak, is the home of the Marine Corps’ Camp Lejeune and New River Air Station. Fayetteville has the Army’s Fort Bragg and Pope Air Force Base. And Durham is one of the vertices of the Research Triangle conglomeration of universities, state and federal government offices, and government, nonprofit and corporate research facilities.

Rents

Local rents are very strong indicators of real-estate values. Home prices in most communities that have best weathered the downturn tend toward the low-rent end. That is, they have lower price-to-rent multiples, and house hunters will often find it cheaper to buy properties than to rent them.

Look at a typical “rent vs. buy” calculator available on many real-estate or personal-finance websites. Most calculators figure that if prices are more than 15 times annual rents, then a market favors renters; under 15 times, buyers.

Earlier this month, there was a $525-a-month rental two-bedroom, one bath house in Conway, Ark., near the state capital, Little Rock, where home values are down just 5.1% from their peak. But asking prices for comparable houses in the same neighborhood are in the high $60,000s so, using the typical rent-vs.-buy formula, prices are about 11 times rent, a bargain.
That’s the same price-to-rent multiple as in college town Champaign, Ill., where a three-bedroom, one-bath house was on the rental market for $850 a month. Albany, N.Y., another state capital, also falls within the affordability range. You can buy a four-bedroom, 1 -bath house for around $200,000, only about eight times the annual rent.

Caveat: Beware the outliers. Extremely low price-to-rent multiples can be warning flags for seriously depressed markets that are glutted with unsold properties. Trulia, another real-estate information site, regularly publishes a rent-to-buy analysis of large metropolitan areas, and the most “affordable” markets are a Where’s Where of the real-estate bust: Las Vegas (prices 6 times rents), Phoenix (7), Miami (8). At the opposite end, Trulia’s survey says the “least affordable” market is New York City (39), where home values are down just 9.1% from their peak.

Foreclosures

Healthier communities have fewer foreclosed properties pulling down values of other homes.
Just as jobs fuel the local housing engine, foreclosures put on the brakes. Even in good times, one foreclosed property in a neighborhood can bring down the values of every other house around it. And, in bad times, entire metropolitan areas can be swamped by abandoned, foreclosed houses.

In 2010, the worst year so far, about 2.23% of all the homes received a foreclosure filing, according to RealtyTrac, an Irvine, Calif., firm that monitors foreclosed properties. In Las Vegas, the poster child of the Sun Belt’s real-estate bust, the foreclosure rate was 12%, more than 80% of homes are worth less than their mortgages and values are down more than 50% from their peak.

And what was the foreclosure rate in Utica, the buckle of upstate New York’s merciless Snow Belt? Barely a flurry, just 0.04%. And home values are down just 4.2%, helped along by a growing population.
For home owners, the snow looks a lot more inviting than it used to.

Mr. Crook is editor of The Wall Street Journal Sunday and author of The Wall Street Journal Complete Real-Estate Investing Guidebook and The Wall Street Journal Complete Home Owner’s Guidebook. He can be reached at

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HAFA Short Sales up Over 70% in April

http://www.dsnews.com/articles/hafa-short-sales-up-over-70-in-april-2011-06-10
Original Post Date: June 10, 2011

By: Carrie Bay

Servicers completed 1,666 short sales and deeds-in-lieu (DIL) of foreclosure under the Home Affordable Foreclosure Alternatives (HAFA) program in April. That’s up 73.7 percent from the 959 HAFA transactions completed the month before.

HAFA has been in place since April of 2010. According to Treasury’s latest report, which covers program activity through April of this year, a total of 7,113 short sales and DILs have concluded through HAFA.

Treasury says another 7,780 HAFA transactions have been started, meaning an agreement has been put in place between the servicer and the homeowner for terms of a potential short sale of DIL.

Treasury notes that a short sale typically takes 120 days to complete under the program. The number breakdown in the report doesn’t specify how many of the HAFA “starts” are still in process or may have been withdrawn. Any short sale also requires the cooperation of a third-party purchaser, junior lien holders, and mortgage insurers to complete the transaction.

The latest data show that the 10 largest servicers participating in the federal government’s foreclosure prevention programs have completed a short sale or DIL for 82,995 borrowers who did not qualify for a Home Affordable Modification Program (HAMP) trial and 31,048 borrowers whose trial plans were canceled, indicating that servicers are employing their own short sale programs to avert foreclosure for borrowers that don’t fit the mod equation.

Critics of HAFA have urged Treasury to raise the monetary incentive for servicers, investors, and subordinate lien holders, citing low payouts as a common reason HAFA short sales are rejected.

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Survey: 87% of First-Time Homebuyers Don’t Foresee Payment Troubles

http://www.dsnews.com/articles/survey-87-of-first-time-homebuyers-dont-foresee-payment-troubles-2011-06-10
Original Post Date: June 10, 2011

By: Carrie Bay

Prospective homebuyers cite worries about future unemployment, concerns about property affordability, and the local economic outlook as issues that hold them back from jumping into the market, according to an industry survey commissioned by Genworth.

But the Virginia-based mortgage insurer says these economic concerns have not translated into excessive mortgage stress among recent U.S. homebuyers.

According to the survey, 87 percent of Americans who bought their first home in the past 12 months expect to easily meet their mortgage repayment obligations in the coming year.

Genworth debuted its new International Mortgage Trends Report Friday based on a global survey of current and aspiring homebuyers aimed at gaining local insight into key world markets. More than 9,000 respondents were interviewed from Australia, Canada, India, Ireland, Italy, Mexico, the United Kingdom, and the United States.

The company says the U.S. is the most optimistic among all the markets surveyed about buying a home. According to the findings, nearly two-thirds of Americans polled believe now is a good time to buy a home.

Genworth says indebtedness colors how households around the world view their financial situation and how they approach buying a home. Western countries tended to have higher levels of debt, but were also more comfortable taking on debt.

Of the many factors that influence the decision to buy a home, Genworth notes that consumer confidence is one of the most important.

The company’s survey found that homebuyer confidence has eroded due to property market instability and worries about personal finances, leading consumers to adopt a wait-and-see attitude.

Still, nearly two-thirds of Americans surveyed believe now is a good time to buy a home for those who can afford it.

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Beating Investors for Bank-Owned Homes

http://online.wsj.com/article/SB10001424052702304392704576377563298484194.html?mod=WSJ_RealEstate_RIGHTTopCarousel
Original Post Date: June 10, 2011

By: June Fletcher

Q. We are first-time buyers who have been trying to buy a bank-owned home for several months, working with a real-estate agent. But every time we make an offer on one, an investor who can pay cash grabs it out from under us. What can we do?

–Phoenix

A. If you have not had much success with your real-estate agent, it may be time to think about finding another with more experience working with bank-owned properties. With good guidance, you should be able to find one.

That’s because Freddie Mac, Fannie Mae and the Department of Housing and Urban Development all prefer buyers who will occupy homes over investors who will rent or resell them. Consequently, some banks will only accept offers from potential owner-occupants for the first 10 or 15 days that a property is on the market. So you will have to be prepared to move fast.

You will need to be prequalified for financing and should also have an inspector lined up to help you evaluate any property you are serious about buying, since foreclosed properties are likely to be in worse shape than those sold by homeowners. Even though the inspection will cost you a few hundred dollars, the expense will be worthwhile if it keeps you from overpaying for a home that needs major repairs, like a new roof, and can help you in your negotiations with the bank.

However, you may not be able to bargain too much with the bank, since it has already taken a loss on the property and wants to achieve as close to market value as possible. You will be in the most competitive position if you can make an offer with very few contingencies, don’t ask for closing costs, put down a sizable deposit (at least 5 percent of the purchase price) and can close quickly.

You will likely have the least competition from investors for properties that don’t require a lot of work or that the bank has already spruced up. Investors prefer fixer-uppers that don’t qualify for conventional financing, since those properties have the largest profit potential for them. They use the fact that they can pay cash to negotiate deep discounts with banks, repair the properties more cost-effectively than most homeowners could, and then either rent them or resell them at or slightly below market value.

Because investors don’t want to hold on to properties forever, it makes sense to contact the ones who outbid you. They may be interested in selling one of the houses that interested you or renting it to you with an option to buy.

Also, don’t overlook the traditional home sale market. Most sellers understand that it is still a buyer’s market, and are flexible on pricing and terms. You may be able to negotiate just as good a deal with a homeowner as you could with a bank.

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Fewer homeowners are underwater on mortgages

http://www.latimes.com/business/realestate/la-fi-underwater-20110608,0,6458273.story
Original Post Date: June 7 ,2011

By: Alejandro Lazo

The number of homeowners underwater on their mortgages in the U.S. declined slightly during the first three months of the year.

The decline in the number of borrowers owing more on their mortgages than those properties are worth occurred despite falling home prices, which plunge borrowers underwater.

Those price declines are being offset by a pickup in foreclosure sales, which take underwater homes off the market, said Sam Khater, an economist with research firm CoreLogic of Santa Ana, which released the data Tuesday.

“We are treading water,” Khater said.

The data showed that about 10.9 million homes with a mortgage, or 22.7% of such properties, were underwater at the end of the first quarter. That was a slight decline from 11.1 million, or 23.1%, in the fourth quarter.

Nevada had the most mortgaged homes underwater, 63%, followed by Arizona, 50%; Florida, 46%; Michigan, 36%; and California, 31%.

The Los Angeles metropolitan area had 365,128 underwater homes, or 23.8% of all residential properties with a mortgage. That compared with 378,230 underwater homes, or 24.6%, at the end of the fourth quarter.

Las Vegas led the nation with a 66% negative equity share, followed by Stockton, 56%; Phoenix, 55%; Modesto, 55%; and Reno, 54%. A report by the Los Angeles Times last week found that in some parts of the Las Vegas metro area more than 80% of homes were underwater, severely limiting mobility and economic opportunity in the region.

Home equity loans also are contributing to the negative-equity problem, CoreLogic said. Thirty-eight percent of borrowers with second mortgages were underwater, compared with 18% of borrowers without home equity loans.

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Builders: Americans Still View Home Ownership Favorably

http://blogs.wsj.com/developments/2011/06/07/builders-americans-still-view-homeownership-favorably/
Original Post Date: June 7, 2011

By: Nick Timiraos

Some people would say that, watching trillions of dollars in equity wiped out, the housing bust would have soured Americans on homeownership. But a survey from the nation’s leading homebuilding trade group says that those people would be wrong.

Three-quarters of respondents said that owning a home is the best long-term investment they can make despite the housing market decline, with 23% of respondents disagreeing. That sentiment is shared most strongly among homeowners (81%) and remains high among renters (67%). But the sentiment is weakest (65%) among those who owe more than their home is worth.

The National Association of Home Builders commissioned the survey to push back against the view that Americans have abandoned homeownership. The real-estate industry has reason to be worried: Regulators have reacted to the financial crisis by proposing lending rules that could raise borrowing costs for future homeowners and a growing number academics and policymakers have called for eliminating generous subsidies for homeowners.

“There has been a disconnect between the media and the American voters and those in Congress who are talking about devaluing or de-emphasizing the importance of homeownership,” said Jerry Howard, the trade group’s president.

Mr. Howard said the poll on homeownership attitudes—something that would have been too-obvious-for-a-poll just five years ago—is also designed to pop a growing bubble of press stories that he says mischaracterize Americans’ appetites for homeownership. ”We read the newspapers, and we read magazines too,” said Mr. Howard.

The concern is that those reports could lead policymakers to mis-diagnose any potential overhaul of housing policies. “We’ve tried to tell people in the media for the last two years that they were overstating“ the extent of Americans’ disaffection with homeownership, but reporters and academics “wouldn’t believe us until we got credible third parties to back us up,” he said. “This poll is our way of dropping the gauntlet.”

The study finds that 95% of all homeowners surveyed are happy with their decision to own a home compared to 5% that are unhappy. (Cynics might ask whether the 5% is comprised primarily of current home sellers, but the survey doesn’t provide that breakdown.) Among underwater borrowers, 17% are unhappy.

Other findings from the survey:

• Underwater borrowers are nearly as likely to advise close friends or family members to buy a home in order to build long-term assets. Some 15% of all respondents say homeownership is too risky, compared to 19% of underwater respondents.

• Just one-quarter of voters who don’t own a home say that homeownership isn’t a goal, with younger voters far more likely to state that they share the goal of owning their own home one day.

• Saving for a down payment and closing costs remains the biggest hurdle to buying a home, with 31% of respondents listing that as their top barrier. Other hurdles include job uncertainty (22%) and credit score (16%).

A separate survey from Fannie Mae shows that a majority of Americans believe homeownership is a safe investment, but that share has declined steadily from 83% in 2003 to 66% in the first quarter of 2011. Still, the Fannie survey showed that 57% of respondents believe homes have more potential as an investment than any other asset.

The NAHB survey of 2,012 likely voters was conducted from May 3-9 by Neil Newhouse, a Republican pollster from Public Opinion Strategies, and Celinda Lake, a Democratic strategist from Lake Research Partners.

Because homeowners tend to vote in higher numbers than renters, the survey of “likely voters” slightly over-represents homeowners. Around 73% of respondents were homeowners, which is higher than the national homeownership rate of around 66%.

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Backing Out of a Short Sale

http://online.wsj.com/article/SB10001424052702303657404576363700932114750.html?mod=WSJ_RealEstate_RIGHTTopCarousel
Original Post Date: June 3, 2011

By: June Fletcher

Q. We made an offer on a short sale home more than three weeks ago and have not heard back from the seller’s lender. We need to move into a new home soon so our children can get settled before school starts. We are tired of waiting and are thinking of backing out of the deal. Will we get our escrow deposit back?

–San Francisco, Calif.

A. As you have discovered, ‘short sale’ does not mean ‘quick sale’. Despite efforts by the federal government to streamline the foreclosure process, it is not unusual to wait for months rather than weeks to hear back from a seller’s lender because there are so many short sales on the market. According the latest figures from Dataquick, short sales made up about 18.6 percent of all existing home sales in the San Francisco Bay area in April, up from 17.6 percent a year earlier and 12.9 percent two years earlier.

If the seller accepted your offer, but the lender did not, you do not have a legally binding contract. So you can withdraw your offer. However, the sellers must also sign cancellation of sale and release of deposit documents before your money will be refunded.

You also should check your contract to see how escrow funds are held. Your real estate agent should have protected you with a clause that says the deposit will not be cashed until the bank approves the sale. If that is the case, you will simply get your check back.

If the bank does approve the sale before you withdraw the offer, you may still be able to back out of the deal while salvaging the deposit. In California, the short sale purchase agreement has one contingency clause that allows you to investigate the property, and another for obtaining a loan. If these boxes were checked, and you did not sign any documents that removed these contingencies, you may be able to get back your deposit if you do not approve the home inspection within 17 days or if you are unable to obtain funding at any point in the transaction.

Other discrepancies that could give you cause to cancel the sale include discrepancies in the square footage listed in the sales documents and the appraisal; clouds on the title; and missing fixtures that are attached to the house and so should be conveyed with it, like sinks and toilets. You are also entitled to a refund if the bank decides to foreclose instead of allowing a short sale.

If you decide to make an offer on a short sale in the future, make sure that your contract includes an addendum that specifies that you will be able to cancel the contract and receive your full deposit back if the bank does not respond by a certain date.

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Why It’s Time To Buy

http://online.wsj.com/article/SB10001424052702304563104576361522020024248.html?mod=WSJ_RealEstate_LeftTopNews
Original Post Date: June 4, 2011

By: Ruth Simon and Jessica Silver-Greenberg

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor’s Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer’s market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody’s Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn’t likely to get much worse. Meanwhile, demographic indicators such as “household formation”—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The strength of the housing recovery depends on job growth.

The upshot: “While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound,” says Anthony Sanders, a real-estate finance professor at George Mason University.
The short-term outlook isn’t encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn’t battered by foreclosures, you may be close to a bottom already.

“The regular marketplace is hanging tough,” says CoreLogic chief economist Mark Fleming.

Here is a look at five key factors that will govern local markets over the next several years:

Demographics

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody’s Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.
But household formation increased to nearly 950,000 last year, says Moody’s, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody’s says.

“Whatever the excess supply of housing is, it is shrinking pretty fast,” says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

“When things do pick up, there will be this pent-up demand for everything involved with starting a household,” Mr. Frey says.

Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. “The baby-boom generation pushed prices up as they got older,” says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, “boomers will start flooding the market on the supply side” with larger homes, while fueling new demand for smaller properties with more services and amenities.

Affordability
Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody’s Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won’t be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody’s Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody’s Analytics.
That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. “It’s a tremendous deal,” he says.

Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

Employment

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. “We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities,” Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor’s and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

Credit

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don’t fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.

But conditions should improve over time, he says: “There’s no question that it will gradually get easier.”
That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn’t been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn’t record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.
“It’s a little devastating,” says Mr. Silver, who is living in Greenwich, Conn.

Psychology

The long-term case for buying over renting remains in force. Yet nowadays, “People are simply scared,” says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn’t clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one’s environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.

“The market is clearly soft,” he says, “especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%.” Mr. Connor says he isn’t worried about missing out on today’s low interest rates and will consider buying once unemployment falls to 6%.

Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that “some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds.”

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