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Existing-Home Sales to Hold Steady in Early 2008

Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, and then rise later in the year and continue to improve in 2009, according to the latest forecast by the National Association of REALTORS®.

Lawrence Yun, NAR chief economist, says there is a pull and tug exerting itself on the market.

“On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline,” he says. “On the other, consumers continue to wait for additional signs of market stabilization. There are more people with financial capacity now than in 2005, but many are trying to market-time their purchase. As a result, the exact timing and the strength of a home sales recovery is a bit uncertain. A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 2.6 percent to a reading of 87.6 from a strong upward revision of 89.9 in October, but remains above the August and September readings and indicates a broad stabilization. The index was 19.2 percent below the November 2006 level of 108.4.

“Although there could be some minor slippage in the first quarter, existing-home sales should hold in a narrow range before trending up,” Yun says.

Across the Region

Regionally, the PHSI showed the following:

• South: rose 2.3 percent in November to 100.7 but is 19.8 percent below a year ago.

• West: slipped 2.1 percent to 86.6 but is 18.5 percent lower than November 2006.

• Midwest: fell 4.1 percent in November to 82.1 and is 18.6 percent below a year ago.

• Northeast: dropped 13 percent in November to 70.1 from a spike in October, and is 19.1 percent below November 2006.

Existing-Home Sales Forecast

Existing-home sales for 2007 will probably total 5.66 million, the fifth highest on record, then edge up to 5.7 million this year and 5.91 million in 2009, compared with 6.48 million in 2006. Existing-home prices for 2007 are likely to be down 1.9 percent to a median of $217,600, hold even this year and then rise 3.1 percent in 2009 to $224,400.

“Rising home prices in the affordable midsection of the country are likely to offset declines in some of the previously hot markets,” Yun says.

There are wide variations in housing market conditions around the country, with nearly two-thirds of the metropolitan areas showing price gains. Healthy increases in metro prices are occurring in places such as Pittsburgh; Beaumont-Port Arthur, Texas; San Jose, Calif.; and Bismarck, N.D.

“Our consumer survey shows buyers today are in it for the long-haul, planning to stay in their home for a median of 10 years,” Yun says. “This is a wise approach to housing because the data shows the longer you own, the better your investment.”

New-home sales are projected at 773,000 for 2007, and declining to 669,000 this year before rising to 730,000 in 2009. However, that is well below the 1.05 million 2006.

With an appropriate slowdown in production, housing starts — including multifamily units — are forecast at 1.36 million for 2007 and 1.09 million this year before edging up to 1.1 million in 2009. Starts totaled 1.8 million in 2006.

The median new-home price should drop 2.1 percent to $241,400 for 2007, and then rise 0.4 percent to $242,200 this year and gain another 5.9 percent in 2009.

Call for Legislative Action

“Some policy changes, such as raising the loan limit on conventional mortgages, would provide a significant boost to home sales, increase liquidity, strengthen home prices and lessen foreclosures, but it is unclear as to if and when the measure will be implemented,” Yun says.

NAR strongly supports raising the Government-Sponsored Enterprise loan limit to at least $625,000 from the current $417,000 so that more consumers will have access to lower interest rates on safe conforming mortgages.

“NAR estimates that raising the GSE loan limit will result in interest rates savings for an additional 330,000 home owners,” Yun adds.

NAR also encourages the Fed to make a single lump-sum cut in the Fed funds rate to 3.5 percent at the January Federal Open Market Committee meeting, rather than a series of modest cuts throughout the year.

“Consumers are also looking to market-time interest rates, and the expectations of further rate cuts are pushing some home buyers to delay,” Yun says. “Monetary policy will be much more effective with a one-time large cut, rather than a series of small cuts.”

The 30-year fixed-rate mortgage is expected to rise slowly to the 6.3 percent range by the end of this year, but an additional cut in the Fed funds rate would lower short-term interest rates.

Meanwhile, growth in the U.S. gross domestic product (GDP) is seen at 2.1 percent in 2007, below the 2.9 percent growth rate in 2006; GDP growth will probably be 2 percent this year.

After averaging 4.6 percent for both 2006 and 2007, the unemployment rate is estimated to rise to 5.3 percent in the second half of 2008. Inflation, as measured by the Consumer Price Index, is projected at 2.9 percent for 2007 and 3.1 percent this year; it was 3.2 percent in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.1 percent for 2007, the same as in 2006, and then grow 1.6 percent this year.

— REALTOR® Magazine Online

10 Most Expensive Cities for Renters

It’s good news for landlords that mortgage applications fell to their lowest level in a year last month because people have to live somewhere and if they can’t or won’t buy, they’ll have to rent.

Here are the nation’s 10-most-expensive cities for renters and the average rents. The data is provided by Marcus & Millichap.

1. New York, N.Y.: $2,922
2. San Francisco: $1,904
3. Boston: $1,658
4. San Jose, Calif.: $1,612
5. Los Angeles: $1,452
6. San Diego: $1,304
7. Washington, D.C.: $1,302
8. Miami: $1,080
9. Philadelphia: $1,014
10. Chicago: $1,010

WHAT IS YOUR FINANCIAL CONDITION

Take my financial condition poll — http://htmlgear.tripod.com/poll/control.poll?u=jfergie01&i=1&a=render

The Rule of Unintended Consequences

The Rule of Unintended Consequences…the natural result of

medaling in the free markets? As I start this, the White House

plan to freeze rates on some subprime mtgs for up to 5yrs will

be announced in about 30min. There will also be hearings today

on providing a litigation safeharbor for servicers that modify

loan terms. The implications are mind boggling…but we won’t

know the real impact for a while. This a.m. mtg delinquencies

rose to a 20-yr high (and we haven’t even gotten to the wave of

‘08 mtg resets yet). WSJ story points out that auto loan

delinquencies are spiking higher too. The ripple effect

continues to expand. Meanwhile the BOE cut their benchmark rate,

joining Canada. The ECB chose to maintain a hawkish stance. USTs

are under some pressure, 10s – 3/16@ 3.98%|Init Claims -15k/338k

Ronald New

Vice President

Stifel Nicolaus

RUN ON FUND

Nov. 29 (Bloomberg) — Florida officials voted at a special

meeting to suspend withdrawals from an investment pool for

schools and local governments after redemptions reduced assets

by 44 percent in the past month.

The pool had $3 billion of withdrawals today alone, putting

assets at $15 billion, said Coleman Stipanovich, executive

director of the State Board of Administration, manager of the

pool along with other short-term investments and the state’s

pension fund.

“If we don’t do something quickly, we’re not going to have

an investment pool,” said Stipanovich at the meeting in the

state capitol in Tallahassee.

The fund was the largest of its kind before this month’s

withdrawals at $27 billion.

Regards, -Ron @ Stifel

Ronald New

Vice President

Stifel Nicolaus

Fed Cuts Rate A Quarter Point, Banks Respond

The Federal Reserve cut the federal funds rate by one-quarter percentage point to 4.5 percent Wednesday.

In response, commercial banks, including Bank of America, Wells Fargo, and KeyCorp., announced that they were cutting their prime lending rate — for certain credit cards, home equity lines of credit, and other loans — by a corresponding amount, to 7.5 percent.

The decline in these rates generally also pushes down first mortgage and refinance rates.

The Fed policymakers supporting Wednesday’s rate cut said the action was needed to “forestall some of the adverse effects on the broader economy” that might arise from the housing and credit troubles that have wreaked havoc on Wall Street over the past few months.

But Fed policymakers said the current and the previous rate cut in September should be enough to “roughly balance” the risk to the economy from inflation.

Most economists are taking that statement to mean that the Fed probably will leave the funds rate alone when it next meets on Dec. 11, the last session of the year.

Source: The Associated Press, Jeannine Aversa (11/31/07)

Top 10 Best Rural Counties to Live

Where’s the best rural place to live?
Progressive Farmer magazine, in partnership with the real estate research firm OnBoard, has compiled a top-10 list of desirable rural counties. The list takes into account several criteria, including home and land prices, crime rates, air quality, education, access to health care, and average household income.

Before making these picks, the magazine’s editors traveled to the top contenders and interviewed the residents and get the lay of the land. Here are their final selections:

• Barren County, Ky.
• Warren County, Pa.
• Randolph County, Ill.
• Gillespie County, Texas
• Union County, S.D.
• St. Lawrence County, N.Y.
• Sac County, Iowa
• Garfield County, Okla.
• Amador County, Calif.
• Polk County, N.C.

Source: Progressive Farmer (October 2007)

Forclosures Drop in September, Still up 99% for Year

Foreclosures were down 8 percent in September compared with August when they hit a 32-month peak. However, foreclosures are still up 99 percent compared to September a year ago.

There were 223,538 foreclosures in September — or one in every 557 households. California, Florida, and Nevada led the nation, according to RealtyTrac, an online market for foreclosure properties. Other states with foreclosure rates ranking among the nation’s 10 highest were Michigan, Arizona, Georgia, Ohio, Colorado, Texas, and Indiana.

In 39 states, foreclosures fell in September. “It’s too early to tell if September’s numbers represent a one-month lull or if they could signify that more buyers and investors are getting back in the market and snatching up discounted foreclosure properties,” says James Saccacio, RealtyTrac’s chief executive officer, in a statement.

Foreclosure rates fell in Texas and Michigan, but both states still reported more than 14,000 foreclosure filings for the month. Georgia reported 11,926 foreclosure filings, down 14 percent from the previous month, but still the sixth highest state total.

Illinois, which was No. 11 in total filings, was the only state to see an increase in foreclosures in September versus August.

Source: Reuters News, Al Yoon, and RealTrac (10/11/07)

Healthy Outlook Continues for Commercial Real Estate

Most commercial real estate markets are enjoying relatively low vacancy rates and healthy rent growth from a fundamentally sound economy, according to the latest Commercial Real Estate Outlook of the NATIONAL ASSOCIATION OF REALTORS^®.

“Commercial real estate responds to economic growth and job creation, which have been fairly strong over the past two years and have created the need for additional commercial space,” says NAR Senior Economist Lawrence Yun. “These fundamentals will continue to support commercial real estate markets in 2008. There has not been much overbuilding in the commercial sectors, and investors are more diverse.”

Commercial Sector Hits Record Highs

Yun says pricing for some commercial real estate has been at a record high, and capitalization rates have been at historic lows. “Normalization of prices may be occurring, but it isn’t clear what the definition of normal might be in the current market given the repricing of risk in the capital market,” he notes. “In short, the difference between the cash flow on a typical property and its price is close to a maximum, indicating prices may even out.”

A record $257 billion was invested in commercial real estate in the first seven months of 2007, up from $146.7 billion in same period in 2006 — that total does not include transactions valued at less than $5 million, or of investments in the hospitality sector.

NAR Forecast

Cindy Chandler of Charlotte, N.C., chair of the REALTORS^® Commercial Alliance, says there have been some problems recently regarding the availability of capital.

“Overreaction to credit concerns in the financial markets could limit the availability of capital needed by private investors, but overall the situation does not appear to have significantly impacted institutional-grade commercial properties,” she says. “We’re returning to the fundamentals and deal structuring of the mid ’90s, and may see some dampening in investment activity, but there is a lot of momentum in commercial real estate.

Chandler predicts the commercial sectors to hold at a healthy level of activity in most of the nation. “Although there could be some slowing as a result of postponed transactions and delays in decision making,” she says.

The following is NAR’s forecast for the four major commercial sectors, based on analyses of quarterly data for various tracked metro areas provided by Torto Wheaton Research and Real Capital Analytics.

Office Market

The office sector is the most favored by investors, with strong rent growth this year. The cost of steel and other factors have helped minimize speculative construction in most markets. The demand for space is expected to remain strong into 2008, and areas with strong job growth are benefiting the most. Older vacated space is lagging on the market in some cities.

Here are some additional projections for the office market:

• Vacancy rate: expected to edge up to an average of 12.9 percent in the fourth quarter from 12.5 percent in the fourth quarter of 2006, and then dip to 12.4 percent by the end of 2008. Projections for the third quarter show areas with the lowest office vacancies include New York City; Ventura County, Calif.; Seattle; Los Angeles; Honolulu; and Long Island, N.Y., all with vacancy rates of 9.4 percent or less.

• Annual rent growth: forecast at 6.1 percent in 2007 and 3.1 percent next year, after rising 5.2 percent in 2006.

• Net absorption of office space: 53.8 million square feet this year and 65.1 million in 2008, compared with 78 million last year. This projection is based on 57 markets and includes the leasing of new space coming on the market as well as space in existing properties.

• Office building transaction volume in the first seven months of 2007: $147 billion, a record for the period, which is 53 percent higher than the same period in 2006. Equity funds accounted for 43 percent of office building purchases, followed by private investors at 21 percent.

Industrial Market

Although the main driver for the industrial market continues to be the need for warehouse and distribution space, particularly in ports and distribution hubs, the rebirth of the technology sector is fueling demand for flex space. A marked increase has occurred in markets such as San Jose, Calif.; Portland, Ore.; Seattle; and Phoenix.

Much of the new industrial supply has been on a build-to-suit basis, and building obsolescence remains a factor for distribution facilities. With tightening availability in many primary markets, users are starting to show greater interest in secondary markets. Here are some more forecasts for the industrial market in the coming year:

• Vacancy rates: likely to average 9.6 percent in the fourth quarter and 9.4 percent by the end of 2008, compared with 9.4 percent in the fourth quarter of 2006. The areas with the lowest industrial vacancies include Los Angeles; Albuquerque; Tucson; Orange County, Calif.; Portland, Ore.; and San Francisco, all with vacancy rates of 5.4 percent or less.

• Annual rent growth: expected to more than double to 3.9 percent by the end of this year, and is estimated at 3.7 percent in the fourth quarter of 2008 — up from a 1.4 percent annual rise at the end of last year.

• Net absorption of industrial space: (based on 58 markets tracked) will probably total 125 million square feet in 2007 and 165.6 million next year, down from 202.8 million in 2006.

• Industrial transaction volume in the first seven months of 2007: $26.8 billion, up 13 percent from the same period in 2006. Private investors accounted for 36 percent of industrial purchases, followed by equity funds at 25 percent.

Retail Market

Recovery in the retail market has been held back by high levels of new supply, but developers appear to have gotten the message. The majority of new space on the market today is in nonregional malls, but new available space should see marked declines in 2008. Credit problems have not yet impacted retail sales, but will be watched closely.

NAR also made the following predictions for the retail market:

• Vacancy rates: projected to rise to 9.3 percent in the fourth quarter from 8.1 percent at the end of 2006; vacancies are forecast at 8.9 percent by the end of next year. Retail markets with the lowest vacancies include San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and Las Vegas, all with vacancy rates of 5.1 percent or less.

• Average retail rent: expected to rise 2.9 percent in 2007 and 1 percent next year, following a 3.9 percent increase in 2006.

• Net absorption of retail space: (based on 53 tracked markets) 12.1 million square feet this year and 19 million in 2008, up from 10.7 million last year.

• Retail transaction volume in the first seven months of 2007: $37.4 billion, up from $22.3 billion in same period in 2006. Private investors accounted for 35 percent of transaction volume, followed by institutional investors at 22 percent and foreign investors, 18 percent.

Multifamily Market

The apartment rental market — multifamily housing — anecdotally appears to be impacted by an influx of single-family homes being offered for rent, cutting into the demand for apartment rentals. In addition, condos are being converted into rental units, particularly in markets such as Washington, D.C., and several areas of Florida.

At the same time, potential first-time home buyers are hesitant and staying in the rental market, supporting multifamily fundamentals until the lure of homeownership returns, the housing cycle changes, and more buyers enter the housing market. Other projections for the multifamily market include:

• Vacancy rates: expected to average 5.9 percent in the fourth quarter, the same as the fourth quarter of 2006, and then ease to 5.6 percent by the end of next year. The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, Philadelphia, Pittsburgh, Los Angeles, Minneapolis, and Nashville, all with vacancy rates of 2.7 percent or less.

• Average rent: projected to increase 2.9 percent this year and 3.8 percent in 2008, after a 4.1 percent rise last year.

• Multifamily net absorption: expected to total 209,200 units in 59 tracked metro areas this year, down from 229,400 in 2006, but increase to 234,400 in 2008.

• Multifamily transactions in the first seven months of 2007: $46.3 billion, compared with $41.5 billion in the same period in 2006. Half of the purchases were by private investors, while condo converters accounted for only three percent of acquisitions.

— REALTOR® Magazine Online