Posts Tagged ‘twin cities’

House Prices and Lagged Data

Thursday, April 3rd, 2014

mortgagesThe following is a posting from one of my favorite blogs, the Calculated Risk Blog.                -Herb Tousley

Posted: 27 Mar 2014 11:55 AM PDT

Two years ago I wrote a post titled House Prices and Lagged Data.  In early 2012, I had just called the bottom for house prices (see: The Housing Bottom is Here), and in the “lagged data” post I was pointing out that the Case-Shiller house price index has a serious data lag – and that we had to wait several months to see if prices had actually bottomed (the call was correct).

Now I’m looking for price increases to slow, and once again we have to remember that the Case-Shiller data has a serious lag.  (Note: the following is updated from the post two years ago). All data is lagged, but some data is lagged more than others. In times of economic stress, I tend to watch the high frequency data closely: initial weekly unemployment claims, monthly manufacturing surveys, and consumer sentiment. The “high frequency” data is lagged, but the lag is usually just a week or two.

Most of the time I focus on the monthly employment report, quarterly GDP, housing starts, new home sales and retail sales. The lag for most of this data is several weeks. As an example, the BLS reference period contains the 12th of the month, so the report is lagged a few weeks by the time it is released. The housing starts and new home sales data released recently were for February, so the lag is also a few weeks after the end of the month. The advance estimate of quarterly GDP is released several weeks after the end of the quarter.

But sometimes the lag can be much longer.  Two days ago, the January Case-Shiller house price index was released. This is actually a three month average for house sales closed in November, December and January. But remember that the purchase agreement for a house that closed in November was probably signed in September or early October. So some portion of the Case-Shiller index will be for contract prices 6 to 7 months ago!

Other house price indexes have less of a lag. CoreLogic uses a weighted 3 month average with the most recent month weighted the most, the Black Knight house price index is for just one month (not an average).

But, if price increases have slowed – as Jed Kolko argues using asking prices – then the key point is that the Case-Shiller index will not show the slowdown for some time.   Just something to remember …

Follow this link to the Calculated Risk Blog: http://www.calculatedriskblog.com/

 

Would rising interest rates and home prices put the Twin Cities housing recovery in jeopardy?

Tuesday, March 25th, 2014

 Researchers at the Shenehon Center for Real Estate think not, but they are keeping an eye on theMarket Report historically low inventory of homes for sale and what that could mean for asking prices.

Would a predicted increase in mortgage interest rates, coupled with a low-inventory-fueled jump in home prices, be enough to kill the housing recovery that has been under way in the Twin Cities for the last two years? That question is examined in the February Residential Real Estate Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Even with a potential increase in both interest rates and the asking price of homes, “the housing market may slow down but the recovery will not be derailed since home ownership will remain affordable for most households,” according to Herb Tousley, director of real estate programs at the university.

What might happen to mortgage rates?

According to many sources, interest rates and mortgage rates are expected to increase moderately during the course of 2014. “Mortgage rates have been extremely low for the last several years and at some point they are going to have to return to more historically normal levels,” Tousley said.  A chart showing the change in mortgage rates since 1980 can be found on the Shenehon Center’s website at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

What might happen to home prices?

The number of homes for sale continues to remain at a historic low level with just 12,131 properties for sale in the 13-county metro area. “We will be keeping a close eye on the inventory because the number of homes for sale will have a direct impact on the percentage of increase in median sales prices during 2014,” Tousley said.  “We have been expecting an increase in inventory of homes for sale in the 15 percent to 20 percent range as we move into the spring and summer selling seasons due to a healthy increase in sale prices over the past year and generally improved economic conditions in the region. “If inventory levels remain stubbornly low throughout the year, the lack of supply will cause prices to increase more aggressively.”

Will homes remain affordable?

“If mortgage rates do increase moderately as expected in 2014, home ownership will still remain affordable for Twin Cities residents,” Tousley said. “Home ownership in the Twin Cities has traditionally been very affordable compared to many other areas of the country,” he added. In Minneapolis-St. Paul the home-price-to-income ratio (the median sale price of a home compared to the area median household income) as of December 2013 was 2.97 compared to the national average of 3.86.A chart on the Shenehon web site illustrates the impact of potential increases in mortgage rates and asking prices. For an example, the chart assumes: a current mortgage rate of 4.5 percent increasing to 5.5 percent by year-end; a 5 percent increase in the median home sale price; a 2 percent increase in median household income for a buyer who puts 5 percent down. In this case, the median sale price in February 2014 of $213,250 would increase to $223,912 by December 2014. During that time, meanwhile, median household income would increase from $63,564 to $64,835.  When principal, interest, insurance and taxes are added to the mix, the monthly payment increases from $1,326 to $1,507. As a result, the debt-to-income ratio in this case increases from 25 percent in February to 28 percent in December. “Payments do increase,” Tousley said, “however they remain within most mortgage lenders’ guidelines that the total payment is at or less than 28 percent of household income. Under this scenario, homeownership will remain affordable for most households.”

 Traditional Home Median Sale Price

How the Twin Cities market looked in February.

February’s severe weather “continued to have an outsized dampening effect on the Twin Cities’ housing market,” Tousley said. Median sale prices were essentially flat and sales volume was down slightly. The percentage of distressed sales (foreclosures and short sales) ticked up slightly to 30 percent in February, but an improvement over the nearly 44 percent recorded in February 2013. “If all this sounds a lot like the report from December and January, there is a good reason for that,” Tousley said, “but look for things to improve in March as the spring selling season gets underway.”

The UST indexes

Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

The St. Thomas Traditional Sale Composite Index continued to decrease, moving from 1005 in January to 995 in February. Despite the monthly decrease, the index remains 2.9 percent above the level recorded in the previous year.

The short sale index was 851 in February, down 10 points from January; however it was a 9.24 percent increase compared to one year ago.

The foreclosure index also decreased in February, moving from 726 in January to 721 in February, a decrease of .7 percent. The index is up 5.68 percent compared to January 2013.

 Feb-2014-Chart

More information online

The Shenehon Center’s charts and report for February can be found at http://www.stthomas.edu/business/centers/shenehon/research/default.html.

Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

More First-Time Buyers Ready to Enter Market in 2014

Friday, March 14th, 2014

More than four million first-time buyers want to enter the market, but they face some tough issues as market conditions aren’t exactly favorable to new buyers.

Reposted from the MReport   Article by Colin Robins:

 This conclusion came from the Zillow Housing Confidence Index (ZHCI), a new calculation released by Zillow and Pulsenomics.

The ZHCI is a measure of consumer sentiment; anything above 50 indicates a positive sentiment. The current national index is 63.7. Of the 20 metros surveyed, 11 had individual confidence levels above the national average.

mortgagesIn 19 of the 20 large metros surveyed, more than 5.0 percent indicated they wanted to buy a home in the next year. The report notes, “Among current renters, homeownership aspirations were particularly strong, with about 10 percent of all renters nationwide saying they would like to buy within the next 12 months.”

A vast majority of respondents said they were “confident or somewhat confident” they could afford a home in 2014.

If every respondent who indicated they wanted to buy a home actually purchased one, first-time home sales would total more than 4.2 million for 2014, more than double the roughly 2.1 million first-time buyers in 2013.

While this optimistic total from Zillow suggests interest is high, actually purchasing a home should prove to be a challenge in the upcoming year.

Market conditions are mixed: inventory, up 11 percent from a year ago, is still well below optimal levels, and has fallen year-over-year in eight of 20 metros measured by the ZHCI. Mortgage rates, once a record low 3.3 percent in 2013, have risen to 4.2 percent, according to the Zillow Mortgage Marketplace.

A dearth of inventory coupled with rising mortgage rates could push homes out of a homebuyer’s price range, particularly for first-time buyers.

“For the housing market to continue its recovery, it is critical that homes are both available and remain affordable to meet the strong demand these survey results are predicting, particularly from first-time homebuyers,” said Zillow chief economist Dr. Stan Humphries. “Even after a wrenching housing recession, this data shows that the dream of homeownership remains very much alive and well, even in those areas that were hardest hit.”

He added, “But these aspirations must also contend with the current reality, and in many areas, conditions remain difficult for buyers. The market is moving toward more balance between buyers and sellers, but it is a slow and uneven process.”

Areas indicated by the ZHCI with the highest interest in purchasing a new home come from metros that were hit hardest by the housing recession: Miami (67.5), Atlanta (62.9), and Las Vegas (64.1).

Each were near or above the national index of 63.7 for “Overall Housing Confidence.”

Consumers Show Renewed Confidence in Housing Recovery

Tuesday, March 11th, 2014

Market Report

The following articel was written by Tory Barringer and was reposted from DSNews

After starting the year on a low note, consumer attitudes toward housing brightened overall in February, according to Fannie Mae.

Asked about home price trends over the next year, 50 percent of respondents in Fannie Mae’s February National Housing Survey said they expect improvements, a recovery from a slide to 43 percent in January. A slightly larger number of consumers anticipate price declines—7 percent, up from 6 percent—while the share of those forecasting no significant movement was down to 38 percent.

Having dropped 1.2 percentage points to start the year, the average home price change expectation rebounded just as sharply to 3.2 percent, matching the December survey.

That renewed confidence in home prices spurred a boost in those saying now is a good time to buy a home; that number was up 3 percentage points from January to 68 percent. At the same time, though, the share of respondents saying they think it would be easy for them to get a mortgage right now retreated from January’s all-time high of 52 percent, falling back to 45 percent.

Doug Duncan, SVP and chief economist at Fannie Mae, said the up-and-down nature of the last few surveys fits with the “noisy economic and housing data published over the past few months.”

“[W]e’ve seen a corresponding increase in volatility in our survey results, particularly for home price expectations and perceptions about the ease of getting a mortgage,” Duncan said. “Despite the volatile month-to-month changes, we believe that the housing recovery is continuing, but is not yet robust.”

Gauging consumer attitudes about the economy, Fannie Mae found Americans were considerably more downbeat than they have been recently. Thirty-five percent of respondents said they believe the economy is on the right track—down 4 percentage points—while 57 percent say it’s on the wrong track, a small bounce after four straight months of declines.

Twenty-four percent of consumers said their household income is significantly higher than it was 12 months ago, an increase of 2 percentage points. Meanwhile, 36 percent said their expenses have grown substantially, an increase of 4 percentage points.

Noting a 6 percentage point jump over the last two months in the share of consumers citing higher household expenses, Duncan speculated that weather may have played a large role in any declines in economic optimism.

“This response would be consistent with higher home heating costs,” he explained.

Nevertheless, at least a few consumers seem to think these higher costs will stick: The number of respondents who expect their personal financial situation to improve in the next year fell slightly to 43 percent, while those expecting things to get worse ticked up to 15 percent.

St. Thomas Report Links Extremely Cold Weather to Downturn in January Real Estate Activity

Tuesday, February 25th, 2014

House for Sale Sales volume dropped last month, but researchers say it doesn’t indicate a long-term weakness in the Twin Cities housing market. 

  Minneapolis, Minn.  –   A January slowdown in Twin Cities real estate activity was likely the result of bitter cold weather and does not indicate a long-term weakness in the market, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 “Sales volume, new listings, and pending sales were all victims of the polar vortex and the extremely cold weather as they recorded levels below what occurred in January 2013,” according to Herb Tousley, director of real estate programs at the university. “The January data and the likelihood of subdued results in February should not be interpreted as an indicator of a long-term weakness in the Twin Cities housing market,” he added. “The underlying fundamentals of the local economy and the arrival of the spring and summer selling season will show the true long-term strength of the market. He predicts that “2014 will be another year of solid gains for the Twin Cities market.”

Traditional Home Median While some aspects of the market suffered from the weather, the median sale price of all categories of homes (traditional, foreclosure and short sale) continues to remain above last year’s levels. The median sale price of a traditional home in the Twin Cities in January was $212,500, up from $199,900 a year ago. The low inventory of homes 0n the market continues to be an issue. There were 11,843 homes for sale in January 2014 compared to 13,070 in January 2013.

 A new look at the need for new-home construction

 The number of building permits issued for single family homes in January indicates that new-home construction is off to a good start in 2014 after making solid gains in 2013. “Despite the bad weather, the number of permits for new single-family homes issued in January was 15 percent ahead of the number recorded at the same time last year, and the dollar value was 22 percent higher than last year,” Tousley said. “Look for a flurry of housing starts as the weather improves and builders, whose production was delayed by snow and cold weather, scramble to build homes in time for the spring and summer selling season.” There are short-term and long-term reasons to expect greater demand for new-home construction.

 In the short-term, Tousley said, the housing industry “has some catching up to do” after years of low construction activity. A second reason has to do with employment.“The key driver for new residential construction is household formation,” he said. “And household formation is largely driven by jobs.” In 2013, the Twin Cities area added approximately 33,000 new jobs. Those new jobs, coupled with a chronic shortage of existing homes for sale, will continue to drive demand for new-home construction. 

The St. Thomas real estate researchers have been looking at a third but long-term reason to be optimistic about the need for new housing: demographics. In the decade from 1994 through 2003, the Bureau of Labor Statistics (BLS) reported the number of people “55 and over” and “not in the labor force” increased by 4.3 million.  Between January 2004 and February 2013, however, the BLS reports the number of people over 55 and not in the labor force increased by 8.1 million. That means more older people are leaving the labor force. According to the Census Bureau, older people tend to live in smaller households and this has pushed down the overall household size, even with some people doubling up. The overall mean household size in America is 2.55, but that falls to 2.29 for householders in the 55-to-59 age group, and 2.07 in the 60-to-64 age group, 1.91 in the 65-to-74 age group, and to 1.60 for those 75 and older. “This increase in the number of retired Americans with smaller household sizes means the relationship between jobs and households has changed over time,” Tousley said. “Models of the relationship of number of households to jobs need to be modified to reflect the changing demographics. This is another reason why the United States, including Minnesota, will continue to need more housing.”

The St. Thomas Indexes

 The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, continued to decrease in January, moving from 1022 in December to 1006 in January. Despite the monthly decrease, the index remains 3.4 percent above the level recorded in the previous year.

The short sale index was 860 in January, down 23 points from the 883 recorded in December; however it was a 10 percent increase compared to one year ago.

The foreclosure index decreased in January, moving from 731 in December to 726 in January, a decrease of .7 percent. The index is up 4.6 percent compared to January 2013.

 More information online

 The Shenehon Center’s report for December (found at http://www.stthomas.edu/business/centers/shenehon/research/default.html) includes charts showing the median sale price of homes, household formation and building permits, and indexes for the traditional, foreclosure and short-sale markets.

 Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

St. Thomas’ Real Estate Report Predicts a Maturing Recovery’ for Twin Cities Housing Market

Tuesday, January 28th, 2014

Market ReportInstead of double-digit gains in median sale prices, things should calm down. And with fewer homes underwater, our historically low inventory should improve.

 Look for a “maturing recovery” this year in the Twin Cities housing market, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 Herb Tousley, director of real estate programs at the university, said that as it enters its third year, the Twin Cities’ housing recovery will continue, but it will be a “maturing recovery.” “Look for the housing market to move more into balance during the second half of the year as 2014 shapes up to be another year of solid gains and a big step toward normality in the housing market,” Tousley said. “The previous two years have seen double-digit gains in median sale prices and a healthy increase in sales activity. The percentage of distressed sales (foreclosures and short sales) has declined from the mid-50 percent range to the low 20 percent range as the foreclosure crisis continues to recede. “We have seen the housing market swing from being a buyer’s market two years ago to a seller’s market with the inventory of homes for sale decreasing to ever-lower levels.

mortgages “In the maturing recovery of 2014, median prices will continue to increase but at a lower rate. Traditional (nondistressed) prices should increase 4 percent to 6 percent and distressed-sale prices will increase 7 percent to 9 percent, leading to an overall increase of 5 percent to 7 percent. “Increasing sale prices will bring more homes onto the market as more homeowners are no longer underwater and equity positions continue to improve. The balance between buyers and sellers should approach a more normal proportion during the second half of 2014. “The percent of distressed sales should be near 10 percent by year-end as the number of foreclosures will continue to decline,” he said. Before the housing crisis, foreclosures and short sales represented 5 percent or less of homes on the market.

 Some key measures the Shenehon Center considers in making housing projections are the number of new jobs and new households in the state and metro area. With Minnesota employment at pre-recession levels, it is expected that 30,000 to 40,000 new jobs will be created in the metro area this year. Along with that will be the formation of 32,000 new households in the state; most of those will be in the Twin Cities. Those increases, coupled with the low number of homes on the market right now, will create in the short run an unmet demand for housing. That will put upward pressure on sales prices, which is good news for home builders and sellers. Mortgage interest rates are expected to increase modestly this year but they will still be historically very low and should not have a major impact on housing.

 According to the Keystone Report, the 5,110 permits issued for new single-family homes in the metro area last year was a 25.9 percent increase over 2012. Although there continues to be a shortage of finished lots and skilled labor in some areas of construction, Tousley said the chronic shortage of homes on the market and a generally improving economy should lead to another 25 percent to 30 percent increase in the number of single-family permits in 2014.

 Specifically for the month of December 2013, the Shenehon Center found that market indicators took an expected seasonal downturn from November 2013, but that indicators for December 2013 were running ahead of December 2012. The median price of a traditional (nondistressed) metro area home in December 2013 was $214,000, down 1.6 percent from the previous month but up 2.4 percent from the same month the year before.  Of note, the inventory of metro-area homes for sale hit 11,797, the lowest level seen in 10 years. 

  (more…)

St. Thomas’ Real Estate Report Says Twin Cities Housing Market is Set for a Good 2014

Friday, December 20th, 2013

Market ReportResearchers from the Shenehon Center for Real Estate say the metro area is one of the most-affordable housing markets in the nation.

 All signs are pointing in the right direction for a good year in the Twin Cities housing market in 2014, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

 Herb Tousley, director of real estate programs at the university, said that in the Twin Cities: job creation is up, household formation is up, interest rates are expected to remain relatively low, the percentage of distressed sales (foreclosures and short sales) continues to decline, the existing inventory of homes for sale will improve, and home prices will continue their recovery.

 “The bottom line is that all of these things indicate that 2014 will be a definite step toward the full recovery of the Twin Cities housing market,” he said.

This month’s housing report also noted that home ownership is and will continue to be very affordable in the state and that the Minneapolis and St. Paul area is one of the most-affordable housing markets in the nation. According to the real estate website Trulia, it is 46 percent cheaper to buy than rent in the Twin Cities, compared to the national average of 35 percent. The owning vs. renting comparison is calculated for an average family that will not move for seven years and makes a 20 percent down payment. It factors in all of the costs for both options at current market conditions. Tousley said the economic fundamentals that are important to the housing market are these:

 Low unemployment: Minnesota’s unemployment rate of 4.8 percent is the lowest since December 2007. The Twin Cities rate of 4.1 percent, meanwhile, is the lowest rate observed in the 50 largest metropolitan areas in the nation.

 Job creation: This is improving; from October 2012 to October 2013, slightly more than 50,000 new jobs were created in Minnesota and about 34,000 of those were created in the Twin Cities area.

 Household formation: More new jobs and higher employment rates lead to increased household formation, an important driver of the need for more new homes.  Household formation increased in 2013 and will accelerate in 2014.

 Interest rates: These are expected to remain relatively low in 2014, remaining at about 4.5 percent for a 30-year mortgage. They might move up toward 5 percent during the second half of the year. Also expect to see some improvement in the process of obtaining a mortgage and credit availability.

 Median sale prices: These will continue to increase in 2014. Prices increased 13 percent in the past year, the second-consecutive year of double-digit increases. A low supply of homes for sale, low interest rates and improving economic conditions will continue to put upward pressure on median home-sale prices. Look for more moderate price increases of 4 percent to 6 percent. This rate of growth is healthy and sustainable as the metro area housing market continues to recover.

 Housing bubble?: Will the increases in home prices lead to a housing bubble? The short answer is no. According the Trulia’s “Bubble Watch,” the Minneapolis-St. Paul housing market is 12 percent undervalued relative to underlying fundamentals. This percentage is arrived at by comparing today’s prices with historical prices, rents and incomes.

mortgages Specifically for the month of November, the Shenehon Center found that market indicators took an expected seasonal downturn from October, but that indicators for November 2013 were running ahead of November 2012. One especially bright spot in the data is that the percentage of distressed sales (foreclosures and short sales) stood at 21.9 percent, well below percentages in the mid-30s seen last fall and winter.

 The median price of a traditional (nondistressed) metro area home in November was $217,000, down from $218,750 in October but 2.8 percent higher than the $211,075 median price recorded in November 2012. Tousley said this is consistent with earlier predictions that the annual rate of increase in the price of a traditional home will moderate from the double-digit gains seen earlier this year and last, and remain in the 3 percent to 5 percent range for the rest of 2013 and the first quarter of 2014.

The inventory of metro-area homes for sale remains very low; the 14,165 homes listed in November was 5.5 percent lower than the 14,990 available during the same month a year ago.  The Shenehon Center predicts this will improve in the second half of 2014 as rising prices reduce the number of homeowners who are “under water” with their mortgages.

 The 5,240 new homes under construction during the third quarter of 2013 is 46 percent ahead of last year’s pace. “Look for new-home construction to make additional major gains in 2014 as conditions will be very favorable for new single-family-home construction,” Tousley said.

 The St. Thomas Indexes

 The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, stands at 1035 for November. It took a 22-point seasonal downturn from October but is 3.9 percent above November 2012.  Likewise, the November index for short sales is 11 percent higher than a year ago and for foreclosures, the index is 6.9 percent higher.

 More information online

 The Shenehon Center’s report for November (found at http://www.stthomas.edu/business/centers/shenehon/research/default.html) includes charts showing the median sale price of homes, the number of homes for sale, and indexes for the traditional, foreclosure and short-sale markets.

 Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu

Exploring a New Method of Financing for Homeownership

Friday, December 13th, 2013

Houseforsale

 The following is reposted from The M Report

12/09/2013 By: Sandra Lane

Perhaps you’ve known someone who raised money for a documentary or civic project by making an appeal through crowd funding on the Internet. Now, the concept of pooled resources is being used as an investment vehicle offering equities in homeownership to investors and loan assistance to selected prospective homeowners. One of the first companies to offer such a program is PRIMARQ, a San Francisco, California-based capital market company that uses equity shares to enable a person to be the major equity owner in a property that otherwise would have been difficult or impossible for that person to obtain. In addition, investors are able to purchase partial equities in the property. The creative mind behind this movement is Steve Cinelli, founder and CEO of PRIMARQ. “I had an ‘aha moment’ one day when thinking about the housing finance base established 90 years ago by the Federal Home Loan Bank back in the 1930s,” Cinelli explained. “I realized that other asset classes have both equity capital available to the users as well as well as debt capital, and I wondered why there wasn’t an equity capital market for housing. I also wondered why there isn’t financing tied to the asset price movement, namely equity,” he explained. Subsequently, PRIMARQ was created to bring equity capital into the mortgage and housing market.

Some may doubt the need for such a plan in the current market with interest rates being so low and doubt that prospective homeowners would choose to invest in equity rather than take on debt in such a low interest rate environment. Cinelli explained that lenders have become more restrictive in terms of their underwriting, and in January there will be increased standards that make credit availability very tight.
“You’ve got to have exceedingly high FICO scores, and banks require additional liquidity over and above the down payment,” he said. He also explained that during the past 18 months, nearly a trillion dollars in mortgage applications have been denied to people whose credit scores were over 700. “The reason for denial is that the debt to income ratio was too high and/or there was insufficient down payment. In other words, the deficiency of equity causes the problem.”

Cinelli believes that through the homeownership and investment plan offered by his company, many people who find it difficult to be approved for a loan will find a solution.
“Although there are [Federal Housing Administration] programs that allow for lower down payments, there are other costs to consider which jeopardize the ability of an individual to qualify for a mortgage,” he said. “If the prospective homeowner doesn’t have enough capital, then let’s bring in private capital to supplement that and allow those investors to benefit from the price movement of the property.”

Follow this link to read the rest of the article:  http://www.themreport.com/articles/new-method-of-financing-for-home-ownership-2013-12-10

 

St. Thomas Residential Real Estate Analysis For October: Market Still Up Over Last Year, But Why Is The Inventory So Low?

Tuesday, November 26th, 2013

mortgagesResearchers from the Shenehon Center for Real Estate examine why the Twin Cities continues to have so few homes on the market.

Home prices in the Twin Cities real estate market continue to run above last year, but the inventory of homes for sale is still quite low, according to the Residential Real Estate Price Report Index, a monthly analysis of the 13-county metro area prepared by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business. Each month the Shenehon Center tracks nine housing-market data elements, including the median price for three types of sales: nondistressed or traditional-type sales, foreclosures, and short sales (when a home is sold for less than the outstanding mortgage balance).

“Improving Market Health”

In his analysis for the month of October, Herb Tousley, director of real estate programs at the university, said that “from September to October, most of the market indicators for the Twin Cities housing market continue to exhibit the normal seasonal pattern that we expect to see in the fall.” In October, median sale prices and pending sales were essentially unchanged and the number of closed sales and new listings were down slightly from September. Compared to a year ago, the numbers show a healthy increase, he said, adding that the number of foreclosures and short sales, at 22 percent of all sales, remain well below last year. Tousley characterized that as “a continued indicator of improving market health.”

The median price of a nondistressed home (not a foreclosure or short sale) in October was $218,750. That’s up from September’s $217,000 and up 2 percent from $214,350 in October 2012. Tousley feels the annual rate of increase in the price of traditional homes will moderate from the double-digit gains seen earlier this year and will remain in the 3 percent to 5 percent range through the first quarter of 2014. Meanwhile, he feels the percentage of distressed sales will continue to decline in the first quarter of 2014 as the number of newly foreclosed properties declines and the number of nondistressed homes on the market begins to increase.

 Why so few Homes on the Market?

The number of homes available for sale has been at historically low levels for months. A chart on the Shenehon Center’s website shows that back in November 2007 there were as many as 14 homes for sale for every one sold. The number was still over 10 in November 2010, but it has been going downhill since. In October 2013 there were 15,669 homes for sale in the Twin Cities area. That represents just 3.6 homes on the market for every one sold. The low ratio contributes to a seller’s market, Tousley said, and the unmet demand creates upward pressure on home prices.

“One of the reasons the inventory of homes for sale remains persistently low is there is still a historically high number of homeowners who have negative equity or effective negative equity,” he said. Negative equity means that a homeowner owes more on his or her mortgage than the home can be sold for at today’s market prices. Homeowners in that situation are not in a position to put their homes on the market. “Effective negative equity” is when the loan-to-value ratio is more than 80 percent, which makes it more difficult for the homeowner to come up with a down payment needed for the purchase of the next home. An example of this is someone who owns a home that could be sold for $200,000, and owes $190,000 on the mortgage. “In this case, the homeowner is not underwater, but the $10,000 that would be left after the sale may not be enough for a down payment on a larger home. As a result, they do not put their homes on the market, either,” Tousley said. He predicts that as long as interest rates remain steady, “these conditions indicate that the supply of homes will continue to be tight through fall and winter into early spring.

” The Twin Cities is fairly close to the United States as a whole when it comes to both “negative” and “effective negative” rates. In the United States, 21 percent of owner-occupied homes have a mortgage in negative equity (or underwater); in the Twin Cities, it’s 21.1 percent. For mortgages in the “effective negative equity” category, it’s 39.2 percent nationally and 41.5 percent in the Twin Cities. And for homes with “negative-equity” mortgages, the Shenehon Center reported how far those mortgages are underwater. For the United States, it is 41.8 percent. The Twin Cities is doing somewhat better, at 35.3 percent.

 

% of Owner Occupied Homes with a Mortgage in Negative Equity

Effective Negative Equity Rate

Percent by Which Underwater Home Owners are in Negative Equity

United States*

21.0%

39.2%

41.8%

Minneapolis / St. Paul*

21.1%

41.5%

35.3%

  *Information from Zillow Negative Equity Report for the 3rd quarter. Follow this link to see the entire report: www.zillow.com/visuals/negative-equity/

 

New Home Construction

The pace of permits for new-home construction, while slowing a bit, still remains well ahead of last year. For most of 2013, permits in the Twin Cities area were running about 30 percent ahead of 2012; in October it decreased to about 26 percent ahead of last year. Through the end of October 2013, the Twin Cities saw about 4,300 permits for new homes; that compares to 3,374 permits in October 2012. The St. Thomas Indexes The St. Thomas Traditional Sale Composite Index, the one that tracks nine data elements, stands at 1057 for October. It took a 13-point seasonal downturn from September but is 4.8 percent above October of 2012. Composite indexes for the distressed sales also are improving over last year. The foreclosure index for October 2013 of 764 is up 8.7 percent from October 2012. The short sale index for October 2013 of 878 is up 10.9 percent from October 2012.

More information online The Shenehon Center’s report for October 

http://www.stthomas.edu/business/centers/shenehon/research/default.html

includes charts showing the median sale price of homes, the ratio of sales compared to the number of homes for sale, and indexes for the traditional, foreclosure and short-sale markets. Research for the monthly reports is conducted by Tousley and Dr. Thomas Hamilton, associate professor of real estate at the university. The index is available free via email from Tousley at hwtousley1@stthomas.edu.

St. Thomas’ Commercial Real Estate Survey Finds “Essentially Neutral” Outlook with Gradual Improvement Ahead

Wednesday, November 20th, 2013

water color MPLS SkylineData shows the semiannual survey of 50 commercial real estate industry leaders correctly predicted this year’s higher rents, occupancy rates and building materials.

Leaders in the field of Minnesota commercial real estate don’t foresee drastic changes in their industry over the next two years. What they do predict is relatively slow growth and gradually improving conditions. That is the theme of the eighth Minnesota Commercial Real Estate Survey, a semiannual poll of 50 Minnesota commercial real estate leaders from the fields of development, finance and investment. The survey has been conducted each fall and spring since 2010 by the Shenehon Center for Real Estate at the University of St. Thomas’ Opus College of Business.

In all eight surveys the same group of 50 industry leaders have been polled on their expectations of future commercial real estate activity. Their responses are used to create index scores that can be compared over time. Scores higher than 50 represent a more optimistic view of the market over the next two years; scores less than 50 represent a more pessimistic view. The November 2013 composite score stands at 47 and continues a “slightly less than optimistic” trend for the third-consecutive survey.   “This fall’s results reflect a mixed bag of optimism in some areas and pessimism in others,” said Herb Tousley, director of real estate programs at the university. “This is similar to the pattern that was observed last spring. However, the degree of optimism and pessimism has become slightly more moderate.”

Price for Space

The index score for rental rates remains positive but dropped slightly, from 69 to 66, as did the index for occupancy levels, which moved from 66 to 62. “Despite the decrease, the panelists remain optimistic that rents and occupancy levels will continue to improve, albeit at slower rates,” Tousley said. This marks the fifth-consecutive survey with scores above 60 in these two areas, indicating, he said, “continued optimism that the economy is going to continue to improve and there will be a greater demand for space.”

Land Prices

The land-price index dropped from 33 last spring to 31 this fall. It was the third-consecutive decrease and, Tousley said, “reveals a strong expectation that land prices will continue to increase. “Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.”

Building Materials

The building-material index moved from a strongly negative 22 to a slightly less negative 24. “That reflects the panel’s opinion that building-material price increases are expected to moderate,” Tousley said. “An improvement in prices will be favorable for future development.”

Return for Investors

The index for investors’ returns has remained at 48 for the past four surveys. That is seen as essentially neutral and indicates the panel does not see a significant change in expected returns over the next two years. “Investors will continue to seek out quality investments but they are being much more diligent about how they price risk and evaluate return,” Tousley said.

Required Equity

The index for the amount of equity required by lenders dropped significantly, from 64 to 57. “This indicates the panel’s belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years,” he said

 Accuracy

With eight surveys completed since the Minnesota Commercial Real Estate Survey began in 2010, the researchers compared the panel’s past predictions with how things actually turned out. It turns out that market conditions in 2013 are very close to what the panel predicted in 2011. Some examples:

  • In 2011 the panel predicted higher rents in 2013. Rents for class A office property in the Twin Cities went from $14.88 in 2011 to $15.74 in 2013.
  • In 2011 the panel predicted higher occupancy in 2013. The average retail vacancy in the Twin Cities went from 8.4 percent in 2011 to 7.8 in 2013.
  • In 2011 the panel predicted higher costs for building materials in 2013. The price for lumber increased from $252 per 1,000 board feet in November 2011 to $396 in November 2013. 

Summary

“Panelists don’t see any drastic changes in the next two years,” Tousley said. “It can be interpreted that things will continue to progress forward, but at a slightly slower pace due to higher development costs in land and materials. “Overall, our panelists do not foresee a commercial real estate recession coming in this market, but we will likely see two years of relatively slow growth and gradually improving conditions in the commercial real estate market in the Twin Cities.

“One thing we have observed in the current survey is there is less variation in the responses and that has caused a more uniform response rate reflecting the panel’s certainty in their views.”

The survey is conducted and analyzed by Tousley and Dr. Thomas Hamilton, associate professor of real estate at St. Thomas. Additional details can be found on the Shenehon Center’s website: http://www.stthomas.edu/business/centers/shenehon/research/default.html