In a December 30, 2011 New York Times article, Karl Case, the co-founder of the prestigious Case-Shiller Index, presents his perspective. The following is an excerpt from the Times article and is reprinted in its entirety.
Karl Case:
‘It’s unbelievable’
A professor emeritus of economics at Wellesley College, Mr. Case’s name
is practically synonymous with real estate values, because he helped
create the Standard & Poor’s/Case-Shiller home price index
(along with the Yale professor Robert Shiller), which is pretty much
the Dow Jones industrial average of real estate. Thanks to the
Case-Shiller index’s relentless decline since the financial crisis, many
are predicting that residential real estate will drop even further in
2012. In a radical reversal of the conventional wisdom, home ownership
has gone from an unquestioned virtue to something to be wary of.
“People are discouraged and fearful,” Mr. Case said. “They’re moving in
with their parents. People thought home prices would never go down. We
now know that they do go down, and you got hammered if you were
overleveraged. Now people think they’ll never go up. The fear is there
won’t be any capital gain.”
This week S.& P. reported that the Case-Shiller index recorded yet another drop in home prices through the end of October, with 19 of 20 metropolitan areas (including New York City) showing declines
from the previous month and year. United States housing prices on
average are now where they were in 2003. But Mr. Case points out that
the data masks some signs of eventual recovery.
The 20-city composite index of home prices hit bottom in March 2011 and
has improved modestly since. “Household formation is increasing and the
vacancy rate is dropping,” he said. “Housing starts are at a 60-year
low, and they’ve been there for three years. That’s unheard-of. We’re
starting to see some signs of an increase in value.”
But looking at a home like a stock or bond is probably the wrong
approach. “If you think of a house as a consumer durable and you qualify
for credit, it’s unbelievable how cheap housing is relative to previous
years,” Mr. Case said. “Mortgages are cheap. If you’re buying a house
or apartment to live in and pay for over time, and can afford the
payments, then it’s a terrific time to buy.”
You've heard this time and time again yet just last week there was another example of poor reporting.
First, an admission - I came in on the tail end of a news segment so I didn't catch the entire conversation nor do I have the financial consultants name. Also, I know that this was one person's opinion and that this isn't an indictment of all news shows. However, when the anchor asked him if now was the time to purchase a home, he answered unequivocally "No". I find that not only incomprehensible but also grossly misleading. Purchasing a home is not the right decision for some however there are several extremely good reasons why it still makes sense for many. The right answer should have been "it depends" because there isn't one right answer for everyone.
It depends on several factors including a family's (or an individual's) financial position (credit score, income, other investments, etc.), current living situation (renting or already own) and anticipated length of ownership. It would be difficult to imagine a better time to borrow money to purchase a home with interest rates hovering just under 4% for 30 year loans. Home prices are near (or at) the bottom of the market. Lastly home ownership should represent more than just an investment (we forgot about that in the early 2000;s). It represents a safe place to live and be a part of a community.
Thankfully, Americans don't agree with this financial consultant. In Fannie Mae's 2011 3rd Qtr. National Housing Survey, they found that 55% of the population believes that home ownership has more potential as an investment than any other traditional investment. More importantly, 68% believe now is the best time to buy a home.
Please don't assume that home ownership isn't right for you or that you won't be able to qualify. Call to find out if this is the right decision for you.
MarketWatch, a division of the Wall Street Journal ranks the Twin Cities 4th in the nation for its business community topped only by Washington D.C., Boston and Des Moines. The study looks at the concentration of businesses and their economic strength. They considered all cities with a population of half of a million or more. To see the full ranking, go to http://www.marketwatch.com/story/california-florida-ohio-cities-in-bottom-10-2011-12-13
In an Ameriprise Financial report, the Twin Cities was found to be among the cities best prepared for retirement. Over 75% of our population is saving for retirement vs. a national average of 69%. The full ranking can be found at http://newsroom.ameriprise.com/article_display.cfm?article_id=1590
The Minnesota Association of Realtors just issued a great summary of the 2011 changes to how are property taxes are calculated. The complete article is attached. Please call me if you have any questions.
I just received the following study presented by Ken
H. Johnson, Ph.D. - Florida International University (FIU) and Editor of
the Journal of Housing at the National Association of Realtors national conference in Anaheim, CA. The analysis should be useful in helping you to decide what's the best route for you.
http://realestate.fiu.edu/buyer-or-renter-nation.html
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I recently saw what I thought was an astounding statistic
from the National Association of Realtors (NAR). In their recently released Existing Home
Sales Report, NAR found that in October, 1 out of every 3 pending
transactions didn't close. - a pending transaction is defined as a home under contract. Compared to a year ago, cancellations have
more than quadrupled.
There are many possible reasons for this - buyers failing to
qualify for a mortgage, buyers walking after an inspection, appraisals coming
in under the purchase price, etc. The
moral here is that in today's real estate market, it's not just about finding a
buyer for your home. There is an
enormous amount of effort (mostly behind the scenes by your Realtor) needed to
ensure that it actually closes. When
selecting a realtor, look beyond the marketing material to see what processes
are in place to minimize the risk of your sale falling apart.
Out yesterday (9/12/11) is a report in the Minneapolis/St. Paul Business Journal that Minnesota is one of the leading nations for mortgage fraud. In a report released by the Mortgage Daily website, Minnesota had over $184 million in reported mortgage fraud. Other states with high rates were California, Florida and Ohio based on civil and criminal cases.
I prefer to think that our state is better at policing ourselves so we catch more of these criminals rather than we have more mortgage fraud crimes in general.
According to Forthebestrate.com, a mortgage interest rate research firm, interest rates today (9/13/11) dropped to the lowest point ever as reported by Rismedia, a leading real estate information systems company. For a 30 year fixed mortgage, this means a rate of 3.875% (APR 4.04%). For the full article, please go to
http://rismedia.com/2011-09-12/mortgage-rates-again-fall-to-record-lows/
I hope it goes without saying that if you were ever thinking about buying a home . . . . please see your preferred lender. Call me if you would like a couple of recommendations.
Except for a brief period in the early 2000's, single family homes have generally seen greater demand than condos and town homes. As the first of the baby boomers hit retirement age last year, that may be changing.
There are approximately 77 million people - those between 47 and 65 years old - who will dramatically shape the direction of housing for the next 20 years. Many are empty nesters with equity in their homes that are looking for a lifestyle change. A recent article in Rismedia suggests that having raised their families, boomers are tired of physically and financially maintaining large homes and would prefer quieter neighborhoods, one-level living and more amenities. Many are finding their options limited.
For the last decade or two, home builders were focused on fulfilling the demand for ever larger homes in sprawling neighborhoods. With this shift in buyer demand coupled with a stagnant housing market, builders have been slow to adjust. Unlike builders prior targeted market - younger families - the boomers have built equity in their homes and have the capability to trade in their homes for a place that better fits their lifestyle.
What will they be looking for:
* Open floor plans that allow casual entertaining of family and friends
* Backyard living space
* Lower or no exterior maintenance
* Single level living with about 2500 sq. ft.
Demand for these types of homes should be strong for the next 20 years.
It continues to be difficult to compare year over year statistics as the post tax credit slump adversely impacted May 2010 sales figures. When compared to May 2011
statistics, pending sales increased dramatically by 13.2%, new homes on the market jumped 10.8% and total housing inventory shrank 11.8%, the lowest May
count since 2005 according to statistics published by the Minneapolis Area Association of Realtors.
Any increase in sales/decrease in inventory is welcomed yet we should be cautious about drawing any long term conclusions. As you would expect, housing sales are
strongly tied to an individual's perception of financial prosperity. Employment remains in a slump and the threat of increasing prices on basic commodities (food, gas, etc.) may dampen any feelings of economic wealth.
There also remains a concern that as people struggle to figure out how to allocate ever tightening budgets, the mortgage payment may lose out to food, utilities, etc.
leading to the prospect of more lender mediated sales.
What does this mean to you and me? If you need to sell your home, there's little incentive to try and time the market - waiting until summer, after the holiday,
etc. Prices have unlikely hit the bottom yet the continued low interest rate remains the one bright light in this market. If you don't need to sell, wait out the market, it will rise again. (I promise!)
As a buyer, the cost of purchasing a home will very likely never be lower. Despite media reports, mortgages are available to qualified buyers although the process can be a bit more time consuming. It also doesn't pay for you to try and time the bottom of the market because interest rates can (and most likely will) rise, causing the cost to buy a home to go up.
Have you been
reading that the number of homeowners more than 90+ days delinquent on their
mortgage is down? It's true, for many people the employment situation is
getting brighter and families are learning to adapt to a more stringent
household budget - cutting out the non-essential expenses freeing up money to
contribute to their mortgage.
You might
have also heard that foreclosures are up and wondering how these two statements
could both be true.. Basically, banks are not foreclosing on as many
homes yet they still have a number of homes that they own that they are slowly
releasing to the market for sale - the infamous shadow inventory.
Banks want to take advantage of the increased optimism in the
market coupled with continued low interest rates to sell the inventory they've
been holding on to for the last several months.
What this
means to sellers is that inventory levels of foreclosed homes is expected to
continue at least through 2011 - different communities have varying levels of
inventory needing to be sold. In addition, lender owned homes are still
selling at a discount against traditional home sales which will continue to put
downward pressure on home prices.
For buyers,
there will continue to be good opportunities to purchase a home at a great
price while borrowing money still near historic lows.
Let me know
if you're interested in learning more about buying a foreclosed home.
I'm late getting the memo - in September, the Twin Cities was
recognized as one of the least stressful metros in the U.S. by
Portfolio.com. Ranking 3rd, we were beat
out by Salt Lake City and Virginia Beach/Norfolk. Criteria included unemployment, change in income,
and amount of sunshine. To see all the
rankings, visit http://www.portfolio.com/interactive-features/2010/09/2010-stress-rankings-for-metro-areas.
Which leads to another more current ranking - Minneapolis ranked 4th
for Best City Summer Getaway by National Geographic. Considering factors like Target Field, the
Farmer's Market, Nice Ride and our museums, Minneapolis was only beaten out by Muskoka Cottage Country, Ontario, Canada, Patagonia,
Argentina and San Juan Islands, Washington.
Pretty cool when you see the other destinations on the list - http://travel.nationalgeographic.com/travel/best-trips-summer-2011-photos/#/best-summer-trips-minneapolis-minnesota_34537_600x450.jpg
This ranking by a recent Business Journal study of 100 of the largest U.S. metro areas is up substantially from 2010 when the Twin Cities was at 39th and at 40th in 2009. The study considered population growth, small business openings and employment rates in it's criteria. Austin, TX came in first for the second year in a row.
One of the basic tenets you’ll find on the Keller Williams website is:
“finding and serving the higher purpose of business through charitable giving in the Market Centers and communities where Keller Williams associates live and work.”
This is more than just a great philosophy we share with the public. Each Market Center is tasked with identifying and donating time, talent, financial assistance, etc. to local community organizations. Attached is a copy of each Market Center’s directive from KW International.
This spring, Keller Williams Integrity Lakes is partnering with the Be the Match Foundation to host a bone marrow donor registration drive. While it’s a mouthful to say, it’s a great cause and a relatively easy process. It involves a registration form and a quick cheek swab, total time is about 15 minutes.
It is in honor of Imani, a 10 year old girl who is desperately in need of a bone marrow transplant. While she hopes to find her match, there are thousands of people who are also waiting for a match that will benefit from this drive.
Below is a link for more information about the event. Please consider registering.
www.bethematchfoundation.org/goto/Imani
I’ve heard much discussion in the last two years that real estate is no longer a sound investment decision; that the stock market makes better financial sense. One of these people is Jack C. Francis, a former Federal Reserve economist and professor at Baruch College. He said in a recent CNBC article:
“For generations, parents and grandparents have been telling us that the way to get ahead was to buy a house and keep making payments with a fixed interest rate and after 20 or 30 years it would be way up in value and that was your nest egg in old age. You could either live in it rent free or sell it and use the proceeds to rent an apartment.” (http://www.cnbc.com/id/41782186)
Discounting for a moment the fact that John Paulson, one of the most successful investment managers, recently said:
“If you don’t own a home, buy one. If you own one home, buy another one. If you own two homes, buy a third. And lend your relatives the money to buy a home.”
By the way, he puts his money where his mouth is – he recently purchased a Manhattan condo for $2.85 mil.
Let’s consider the facts. Looking at the time period of January 1, 2000 through February 1, 2011, the return on investment for the Dow was up 10.1%, the S & P was down 6.5%, the NASDAQ returned a negative 30%. During that same period, real estate was up 43.9%. I realize that this assumes that you held your home for this 10 year period. Yet, until the recent flurry of real estate flippers and day traders, people viewed their home as a long term investment, a place to create a home vs. a quick way to make some money.
Here are the reasons you need to buy a home:
1. You need a place to live. When people look strictly at a comparison of stock market vs. real estate returns, living expenses aren’t taken into account
2. In many markets, it is still less expensive to buy vs. rent. Trulia found this to be true in 72% of the largest 50 markets. Minneapolis has a price to rent ratio of 15, meaning it’s much less expensive to buy vs. rent. For the full report, go to http://info.trulia.com/index.php?s=43&item=113
3. You may never again see interest rates as low as they are today. The cost of borrowing money continues at historic lows. Where else can you lock in a significant portion of your living expenses for 30 years?
4. A home represents financial security to most people.
Before renting, speak with an experienced Realtor to see if there might be a better option for you.