AOL Real Estate - Blog

Housing Market 2013: Predictions of What's to Come

Fortune Magazine — 2012-12-27T08:52:00 00:00

By Nin-Hai Ting

We watched for more home sales and rising prices in 2012. Here's our housing market predictions for next year.

Buying Gets Less Affordable

The bust of the housing market five years ago created one of the cheapest times to buy. Across many parts of the U.S., even in some of the priciest markets including New York and Honolulu, it has become cheaper to purchase a home than rent, according to Trulia's Rent vs Buy report. Record-low interest rates on mortgages have also made buying more affordable.

Related: Find Homes for Sale in Your Area

That's changing, however. In 2012, prices hit bottom. Finally! While that tells us the market is healing, it could also mean buying will be less affordable in 2013. Asking prices for homes for sale rose 3.8% in November from a year earlier -- one of the biggest gains since the housing market crashed in 2007. While rents nationwide are still rising faster than home prices, the trend has reversed in 14 of Trulia's 25 biggest rental markets including Denver, Seattle and San Francisco.

Watch for Rising Jobs, Not Rising Prices

Most of us watched home prices to gauge the health of the housing market. That was so 2012, however. Just because prices are rising doesn't necessarily mean the industry is doing any better. Next year, a better pulse of the market will be the rate of jobs growth, says Jed Kolko, chief economist with Trulia.

Cities like Las Vegas, Miami and Phoenix have seen home prices surge, but it's uncertain how long that could last. Prices have risen, partly because they fell so much and also because many homes are still undergoing the foreclosure process. They're also cities in states with some of the highest rates of unemployment, which ties closely to how well people will be positioned to buy.

For 2013, Kolko has spotted 10 cities where he thinks the market will be healthiest. Congrats, Texas, you make up the bulk of them!

Delinquencies Fall (Very Slowly)

The troubled housing market was marked by record foreclosures, which is why economists closely watch the rate at which homeowners are late on their payments -- they're a precursor to foreclosures. Nationwide, the delinquency rate on mortgages peaked during the last three months of 2009 at 6.89%, after rising 12 quarters in a row from 1.49% in 2006.

As of the latest quarter, the delinquency rate dropped to 5.41%. And for 2013, it's expected to continue dropping -- albeit, slowly to around 2%. Much of the late payments are made up of existing borrowers more than a year late on their payments, as opposed to new borrowers following stricter lending standards. Some of the biggest declines are expected in Nevada, Minnesota, California and Arizona.

Record-Low Interest Rates

Cheap money has certainly helped the housing market recover. For the past few years, average interest rates on 30-year-fixed mortgages fell to new lows. With December remaining, rates this year averaged 3.68%, lower than the average 4.45% for 2011 and 4.69% in 2010.

Related: Find Out What Kind of Mortgage You Can Afford

To be sure, rates can't stay low forever. Which is why some have worried a return to higher rates could push home prices down again. But if the Federal Reserve has its way, that won't happen any time soon. In an unusual move during its last meeting of the year, the central bank's policy-making board decided to leave rates untouched until the unemployment rate falls to 6.5% so long as inflation stays low. Which means, according to the Fed's predictions, rates will likely stay low into 2015.

First-Time Buyers

The housing market's rebound was hard to miss this year, but not everyone rode the wave to better days. Missing were first-time buyers -- many of whom were either jobless or couldn't get a home loan or both.

Those who tend to be first-time buyers, 25 to 34-year-olds, suffered far worse joblessness than most other adults in the years following the recession. A year ago, unemployment among young workers was 9.2% versus 8.7% for all adults. The gap has narrowed recently. In November, unemployment among young workers had fallen to 7.9% versus 7.7% for all adults.

If the trend continues, this might help bring first-time buyers back into the market.

See more on CNNMoney:
Payback Time: Florida Homeowners Foreclosing on Banks
Clock Ticking on Mortgage Tax Break
Make Your Old House Look New Again

Permalink | Email this | Comments

The Automated Home Is One Step Closer

Fortune Magazine — 2012-12-13T11:00:00 00:00

By Brian Dumaine

The powerhouse private equity firm Blackstone recently invested in a Provo, Utah, company that installs home security systems in an equity deal that's valued it at $2 billion. What does Blackstone see in an industry that's not known for being particularly sexy?

It turns out that private company Vivint, which had sales of nearly $400 million in 2012 and is second in residential security only to ADT, is becoming much more than a security firm. CEO Todd Pedersen sees the security business as a way to sell his customers everything from smart thermostats to lighting control systems and even rooftop solar systems. Says Pedersen, who favors plaid shirts and a baseball cap with "Vivint" scrawled across its front: "We've been an industry that hasn't innovated in 20 years. "

Pedersen aims to fix that. He figures that his 700,000 customers might want more than just security. His home automation system -- which comprises of a touch-sensitive control panel mounted on the wall, sensors, cameras, lighting controls, thermostats and smart phone apps -- can help keep your house safe and save energy at the same time. For example, the system links with the motion detectors of the home security system to tell when you're home and when you're not. When you're not, the heat is turned down and the lights are automatically turned off. Other systems like the Nest thermostat, which was created by a former Apple designer, tries to "learn" when you're home or not based on your past behavior. Pedersen claims his system is more accurate and says that, on average, his customers can save $30 a month in heating, cooling and electric bills.

Vivint's system can also tell the homeowner exactly how much power he or she is using. It can also be hooked up to the rooftop solar systems Vivint now offers. Studies have shown that homeowners can cut their power usage some 10% when they know how much power they're using. Users can also control heating, lighting and door locks remotely from a smart phone or tablet. Coming home early? Just tell the system that you're arriving in a half hour and the house will start to heat up. The system can even control lawn sprinklers. If the local weather report calls for rain, the system, which is hooked up to the Internet, will know and won't turn on the irrigation system, saving water.

Vivant so far has signed up more than 170,000 of its customers for the energy-saving system. The full home automation package costs $68.99 a month plus a $199 one-time activation fee. But the company is not alone. Its archrival ADT is starting to offer home energy systems. Tendril, a company based in Boulder, Colo., sells sophisticated home energy management systems. And big cable companies like Time Warner, Verizon and Comcast have recently entered the home security and energy management space. Says Pederson, who sleeps only 4 hours a day: "What keeps me up at night is I'm always concerned that we're not innovating fast enough." He must be hearing some big footsteps behind him.

See also:
Solar Power at Home Saves Money
Green Living for Renters
7 Green Home Trends: From Baby Steps to Extreme Updates

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
See celebrity real estate.
Find homes for rent in your area.

Follow us on Twitter at @AOLRealEstate or connect with AOL Real Estate on Facebook.

Permalink | Email this | Comments

Key to the Housing Recovery? It's Still Investors

Fortune Magazine — 2012-10-26T11:30:00 00:00

Filed under: News,Economy,Investing

By Nin-Hai Tseng

After witnessing one too many false starts in the recovery of America's housing market, it's hard not to be a little skeptical about what kind of recovery we should expect. Will it improve steadily, or experience choppy stops and starts?

One way to determine that is by looking at who is driving home sales: Is it investors buying up homes in bulk with hopes of turning a profit or individual buyers simply looking to live in the homes they purchase?

There isn't an easy answer, but the Federal Reserve Bank of Atlanta recently looked into it. The topic is especially timely, given that Wall Streeters are increasingly turning foreclosed properties into rentals as an investment. Whereas, in the past, smaller investors typically played landlord, big investors such as private equity firm Blackstone Group are betting that the homes they buy today will turn decent profits years from now.

Related: Want to Buy a Home? Check Out AOL Real Estate's Listings

If investors drive the housing recovery, sales could eventually drop off once prices rise to a point where it's not as worthwhile for them to buy. By contrast, we might see a longer and more sustainable rally if individual buyers dominate home sales.

Both investors and typical buyers have signaled bigger appetites to buy. In September, sales of existing homes, which investors tend to flock to, rose by 11 percent to a seasonally adjusted annual rate of 4.75 million from a year earlier, according to the National Association of Realtors. And for seven months in a row, the median price for existing homes rose -- it's now $183,900, up 11.3 percent from the previous year. Sales of new homes, which generally attract individual buyers, have risen as well. The median price for a new house rose to $242,400 in September, 11.5 percent higher than a year earlier, the Commerce Department reported Thursday.

For now, it's unclear who is driving the recovery. In the Southeast region, the Fed estimates that investors made up about 25 percent of home sales. This is roughly what others have estimated nationally, based on a survey of Realtors called the Multiple Listing Survey. To be sure, though, the share is likely higher because the survey doesn't reflect bulk sales to investors by banks or at auctions where there's usually no Realtor involved.

Nonetheless, investors' part in the recovery has steadily risen. And if trends continue, they could surely dominate home sales. In 2011, single-family and condo sales sold to investors rose by 65.3 percent to 1.23 million properties nationwide, compared with 749,000 the previous year. That reflects 30 percent of existing home sales, according to California-based real estate investment firm Norada Real Estate Investments. Many of these sales have occurred in markets that were burned the most, says Marco Santarelli, a broker at Norada. That includes Miami, Phoenix, Las Vegas, Sacramento and Riverdale, CA.

That's similar to the way Fed analyst Jessica Dill sees it. In her look across the Southeast, the share of home sales to investors markedly dropped to 20 percent from 25 percent when Florida - among the states hardest hit from the housing crash - was excluded. This suggests investors may be driving the recovery especially in markets that saw the worst of the housing bust. If that continues, sales could eventually decline unless individual buyers are able to pick up where investors leave off. Not to say that would be less than a genuine recovery, but at the end of the day, investors can move the market only so far.

The rest will depend on consumers and a host of uncertain factors, from an improving jobs market to being able to qualify for a home loan.

See more on CNNMoney:
Latest in Mortgage Fraud: Flopping
What Percentage is Best for a Down Payment?
25 Best Places to Retire

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
See celebrity real estate.

Follow us on Twitter at @AOLRealEstate or connect with AOL Real Estate on Facebook.

Permalink | Email this | Comments

Wall Street's Hottest Investment Idea: Your House

Fortune Magazine — 2012-07-30T13:45:00 00:00

By Stephen Gandel

Your house might be a better investment than you think. At least Wall Street seems to think so.

For a while now the conventional wisdom on real estate has been that while home prices might not fall much more, they aren't likely to go up anytime soon either. The best personal finance advice, then, when it came to buying a house, was to buy as little as possible.

Apparently, though, on Wall Street that common wisdom about home prices is not held by all, or even many. In the past six months or so, a number of investment firms, hedge funds, private equity partnerships and real estate investors have turned into voracious buyers of single-family homes. And not just any homes, but foreclosures. Investment banks, who also want in on the action, are lining up financing options to keep the purchases going.

Take for instance private equity mega-firm Blackstone Group. About a year ago, when The New York Observer profiled the firm's head of real estate, Jonathan Gray, there was no mention of single-family homes or even that the firm was looking to profit from a rebound in the residential real estate market.

Last week, Gray said that Blackstone now owns 2,000 single-family homes. At $300 million, that might be small compared to Blackstone's overall real estate portfolio of about $50 billion. But it's one of the biggest piles of homes ever intentionally put together by an institutional investor, and it's likely not the largest portfolio out there these days. (Banks and Fannie and Freddie are sitting on many more foreclosed homes, but that's a different story.)

Buying up single-family homes as an investment is nothing new. It's what landlords do all the time. But landlords have always tended to be mom-and-pop outfits often not owning more than a few dozen units confined to one area. Large Real Estate Investment Trusts and private equity funds generally focused on apartment buildings and commercial real estate, like malls and office buildings. That appears to be changing.

Kenneth Rosen, a professor at the University of California, Berkeley, who has a consulting firm that advises real estate investors, says that he knows of two dozen investment funds in the process of buying up single-family homes, a number of which are hoping to own as much as 10,000 homes around the country. He predicts that there could be as many as a dozen public real estate investment trusts, or REITs, in the next few years that are devoted to single family homes.

The funds aren't betting on home prices shooting up. The hope is to buy foreclosed homes at a discount, fix them up, and then rent them for a profit. But Blackstone's Gray says his firm's plan is to eventually sell the houses for a profit when the economy improves to the point where those who have become renters can afford to buy again, or when the banks really start lending again.

And that could look bad for Wall Street. Undoubtedly, to some this will once again be financiers making money off the bust that they helped create, especially since some of the people who are now lining up to buy foreclosed homes helped create some of the worst mortgage bonds, or bet against them. What's more, Harvard professor Matthew Desmond believes that Wall Street firms will band together and work to jack up rental prices on houses that they minimally maintain.

But without any evidence, it's probably a little too early to condemn Wall Streeters as slumlords. And no matter how many houses they buy up, fixing rental rates in the huge housing market will be much harder than manipulating Libor. What's more, the best thing that could happen for the economy right now is probably for the overhang of foreclosed homes to disappear, even if it doesn't immediately lead to rising prices. So this might prove to be an instance where Wall Street ends up doing what it's supposed to do, allocate needed capital to an undervalued sector of the economy, helping everyone in the process.

But perhaps the most interesting thing here is what this says about the value of your house. A report from Goldman Sachs earlier this year predicted that investors could generate 8 percent investment returns by buying up, fixing up and renting out homes. You have to pay for a mortgage. But still it probably means that buying a home right now or even owning the one you have, as long as you didn't overpay too badly, is a pretty good investment at a time when 10-year Treasury bonds are paying out 1.5 percent, and investment yield in general is hard to find. We could be finally planting the seeds of a rebound.

See more at CNNMoney and Fortune:
Become a Millionaire Real Estate Mogul
Buying Into a Housing Comeback
Selling Roy Rogers' Former Ranch

More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Find homes for rent in your area.

Follow us on Twitter at @AOLRealEstate or connect with AOL Real Estate on Facebook.

Permalink | Email this | Comments