Housing Starts Are Trending Upward!

Calculated Risk Blog reports housing "Starts in February were up 27.7% from February 2012; single family starts were up 31.5% year-over-year..." In CR's chart below, housing starts hit a 40+ year low in 2009. And while, we are still on the very low end of housing starts, the trend is up. Housing starts are thought by most experts to be a main driving force for the economy.

Remodel or Not to Remodel, That is the Question.

Remodeling can improve your quality of life and add to the value of your home, just don't expect to re-coup your costs dollar for dollar. Source: The KCM Blog - Top 10 Remodeling Projects [INFOGRAPHIC]

 



Supply and Demand, the Nitty-Gritty on Housing Inventory.

The KCM Blog - What’s Up with the Housing Inventory?

 

I'm sharing this blog from the folks at KCM.

What’s Up with the Housing Inventory? Posted: 20 Mar 2013 04:00 AM PDT We are honored to have Chip Wagner, an icon in the appraisal industry and our good friend, as a guest blogger today. Chip recently addressed the housing inventory challenges in the Chicago region. We believe that his observations can be applied to the majority of markets in the U.S. – The KCM Crew It’s All About Supply and Demand Definitions of Supply and Demand: Dictionary.com In classical economic theory, the relation between these two factors determines the price of a commodity. This relationship is thought to be the driving force in a free market. As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down. Investopedia.com A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down. In real estate appraisal context, the principle of Supply and Demand states that: The price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply. My most simple explanation of Supply and Demand is: It is the relationship between sellers present in a market, which is the supply; and buyers looking, which is the demand. This relationship is reported in months’ supply of inventory. So, what is the latest challenge? Some (or most) might say that there are not enough “good” homes for sale. This could represent a shortage of supply, something we have not talked about for several years. It is allowing sellers to raise their asking prices and buyers who have been ‘shopping around’ are now willing to pay higher prices based on other homes they are comparing and/or contemplating to the home that they want. Why do we have a shortage? We are coming out of the worst decline (or correction) in real estate values for many generations – some pointing back to the early 1980′s, others are pointing back to the Great Depression. In all of Chicagoland, our MLS showed a 37.6% decline in 5 years. The values hit their all-time high in the 3rd quarter of 2007 at $391,272, and by the 3rd quarter of 2012, they hit a low of $244,203. The mean sales price at the end of the year in 2001 was $239,858, and year-end 2002 was $255,001. Therefore pricing as of the end of 2012 is at the same level that we were 10 years ago – sometime in 2002. Why aren’t there many “good” homes for sale? There are several contributing factors: 1. New construction – We are seeing new construction picking up again at all price points, which is certainly a positive. But with fewer builders, and more conservative approaches after getting burned, builders are not keeping up with the demand that is present. This is leaving buyers searching for resales. And because of the slowdown in new construction, (few new homes were built between 2007 and 2012) the nearly-new resales rarely exist. Lack of new construction is a contributing factor as many builders folded or downsized significantly over the past 5-6 years. 2. Foreclosures – Foreclosures are a trend that is affecting supply of inventory. Banks are slower at foreclosing, in some cases taking over 3 years through the process. In some cases, the buyers aren’t even interested in these properties, and the investors are picking up these properties and flipping them at a profit. Foreclosure properties, once viewed as a deal perhaps 25% to 40% under market values, are now being sold at only a 7% discount according to RealtyTimes.com. 3. Investors – Investors have entered the market at greater levels, some to purchase properties to rent, others to rehab and flip them. With the high inventory, investors were able to seek out the best deals, now there are fewer homes available for them. 4. Few people really want to sell at the bottom – Personally, I think the biggest reason that our inventory is low is simply because everyone wants to buy at the bottom; but what seller really wants to sell their home at the bottom of the market? That being said, there are many sellers who cannot sell. Recently, I heard Steve Harney speak at the Leading Real Estate Companies of the World Conference; he stated there are over 10 million people that are still under water and cannot sell their homes. That is a significant number – these are ‘move-up buyers’ that will create a domino effect. A portion may also represent the potential downsizing buyers who have that upper priced home to sell. This is a very complicated situation. There are many opportunities in the market as demand continues to surge. Move-up sellers have pent up demand and are ready to buy – if they can sell! Remember, our market dropped 37.6% as a region since 2007 (some areas fell less than 20%, and other areas fell greater than 50%). The buyers with 20% down lost equity in their homes. Buyers with 5% or 10% lost substantial equity in their homes. If they sell today, they don’t have the down payment necessary for that next home. Various predictions by “experts” suggest our recovery may be anywhere between 2% and 8% annually. At a conservative 4% annual rate of recovery, it is 5 more years before we can reach 20%. Those who last purchased their home between 2006 and 2008 are being hurt the hardest in today’s market. One positive is that renters are ready to purchase. Generation X and Y buyers now believe in homeownership; they want to get out of renting apartments because rents continue to go higher than taking out a mortgage. Interest rates remain at historic lows, with no indication of a significant increase of rates on the horizon. From the 3rd quarter to the 4th quarter, Chicagoland saw its first quarter to quarter increase in sales price since prices began falling five (5) years ago. All indications are that this trend is continuing. But the increase, although welcome news, is very small. (+0.13%). Many communities throughout Chicagoland are seeing more substantial increases, some are not yet seeing increasing values. (44%, or 84 out of 191 communities) saw increases over the past quarter. Back to Supply and Demand … A balanced supply of inventory is considered to be 4 to 6 months. A balanced supply is going to be neutral in pricing, while an undersupply is going to lead to upward pressure on prices – a Seller’s Market. An oversupply will lead to downward pressure on prices – a Buyer’s Market. Our supply of inventory is at its lowest level since the end of 2006 and most areas have been reduced to a balanced supply of inventory, with undersupply observed in many sub-markets in the region. Chicago Detached housing is 3.88 months, and Attached housing (condos, townhomes, Co-ops and duplexes) is 2.87 months supply! The anticipation is that the pricing will continue to be pressured upward as the desirable properties (in terms of location and condition/modernization) will be gobbled up. Remember the multiple-contracts driving up values last decade? Many agents are now experiencing these trends again. Get ready for a wild and crazy ride as our real estate market in Chicagoland is pulled and pushed in all directions in 2013 This could lead to things that do not make sense in the crazed market. Real Estate professionals (Agents and Appraisers alike) must take care to understand all of the nuances in the market signaling the positives taking place. Just what we need: more complications to try to understand. Here are a few things to watch… Watch the days on market (DOM). Take time to understand if an area’s high DOM may be due to stale listings of homes that are overpriced, distressed and/or in inferior condition. Trend the increasing Sales Price-to-List Price ratios - in many sub-markets that I appraise in, I have seen these trend from 93% to 96% or higher just in the past year. Track the number of pendings in relationship to the number of listings? One appraiser friend of mine tracks this and calls this “market velocity.” Right now, I see some areas where there have more pendings than listings in a given sub-market. Are the pendings priced higher than the previous sales prices? Another indication of an increasing market that I am seeing in many areas. Welcome to, we all hope, the Housing Market Recovery!

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Lincoln Square Single Family Homes Are A Seller's Market!

Four to five months inventory is considered a balanced market. More than five months is a buyer's market, less than four months is a seller's market. In Lincoln Square single family homes, we have gone from a strong buyers market to a strong sellers market in less than two years.

Average Sales Price on the Rise in Lincoln Square/Welles Park!

Although home prices did not take the huge dive in the Lincoln Square and Welles Park area that they took nationwide, they did trend downward. All indications show they are an upswing now.

“I think we are in Nirvana for housing..."

Real Estate: When She Speaks, We Should Listen

by The KCM Crew on March 11, 2013

Ivy Zelman is an industry expert consistently recognized by Institutional Investor, Greenwich Associates, StarMine and The Wall Street Journal as an industry-leading analyst. What separates her from many other analysts is the fact that she has accurately called the real estate market continuously over the last decade.

Her Position in 2006

She was one of the first to call the burst of the housing bubble. She was nicknamed ‘Poison Ivy’ for the harsh positions she took in combating the overly optimistic views of many in the industry at the time.
What happened next?
Existing home sales plummeted, new construction starts feel to historic lows and prices dropped by 50% in some areas of the country.

Her Position in 2012

Ivy Zelman, in a Wall Street Journal article in March Stunned Home Buyers Find the Bidding Wars Are Back, projected that the real estate market was about to rebound and that home prices would begin to appreciate. She emphatically claimed:

“We very much believe we’ve hit bottom.”

What happened next?
Pending sales (homes going into contract) surged in May and have remained above what is recognized as a healthy market level ever since. Starting in June, home prices began to appreciate on a year-over-year basis. This continued through the rest of the year with yearend appreciation coming in at 6.8%.

Her Position Today

What is Ms. Zelman saying today? In an interview on CNBC, she said:

“I think we are in Nirvana for housing…I’m probably the most bullish I’ve ever been fundamentally…I think home prices could go up for four to six years…Today, the urgency and sentiment toward buying residential real estate is back.”

What will the future bring?
If Ms. Zelman’s past predictions are evidence of her understanding of the housing industry, it seems that real estate is about to make a dramatic comeback.

Interest Rates Could Hit 4.4% by Year End.

A rise in interest rates will affect both the buyer and the seller. As always, Cost trumps Price. As interest rates go up, Cost goes up even if Price stays the same. Instead of being able to pay for a higher priced home, the buyers will be giving more of their allotted monthly payments to the bank. In Lincoln Square, where the average sale price is $758,688, that is an additional $340 per month just in interest. At today's rates, $340 per month can buy an additional $75,000 of house. But by waiting the buyer may have to settle for a smaller house, and the seller will have a smaller pool of potential buyers. A buyer could actually be "costed" out Lincoln Square by waiting. This is a lose/lose situation.

Umpire Training for Welles Park Youth Baseball Starts Wednesday March 6th



Training for new and returning Welles Park Youth Baseball umpires begins March 6th. For complete information go to wppabaseball.com or call me at 773-719-5985.

A Winter's Sunset in Lincoln Square.

Lincoln Square Housing Inventories Reach Lowest Levels in a Decade!

I have been stressing the effect of the lack of inventory on the housing market in Lincoln Square and across the country. Here is a graphic representation of the just how low the inventory levels are in the Lincoln Square Welles Park area.