House Price 'Bubble' Now Deflated

According to a new study by SMR Research Corporation the housing "bubble" -- whose bursting triggered the current mortgage credit crisis -- has now fully deflated.

This sets the stage for a mild housing recovery, which SMR said would begin prior to year end 2008.

The recovery is likely to be gradual, with house prices merely firming up or increasing slightly, rather than returning to the strong growth they showed from 2002 to mid-2006, the firm said.

SMR specializes in mortgage and home equity loan industry research. An SMR study was among the first to declare (in 2002) that a housing price bubble existed, defined as prices rising faster than consumer incomes. In a 2004 study, SMR forecast that a "perfect storm" in credit quality would cause an explosion in foreclosures within two years.

"Our prior forecasts were accurate but widely disbelieved when issued," noted SMR President Stuart A. Feldstein. "We similarly expect a skeptical reaction now to a recovery forecast, which is not the common view. But the numbers are what they are."

The new recovery forecast was published within SMR's annual Spring study on mortgage industry trends and leading players: Giants of the Mortgage Industry, 2008. More than 230 pages this year, Giants has been in continuous publication since 1986.

A special section in the study used home price and consumer income data from several sources to show how the bubble grew from 2002 to 2006. The same data now show the bubble has evaporated at current mortgage interest rates after 18 months of rising incomes and falling home values.

"Homes are now affordable again," Feldstein said. "Consumer psychology is the biggest remaining hurdle to recovery."

Prospective home buyers, still hearing predictions that prices will fall further, keep waiting to buy, SMR noted. This becomes a self-fulfilling prophecy, as scant demand pushes home prices lower.

"The stage is set for recovery, but the play won't go on if no one buys a ticket," Feldstein said. "Consumers must believe prices have bottomed out, or nearly so, before they will buy in larger numbers."

SMR noted that home price depreciations always do come to an end eventually, as occurred over the last 20 years in California, New England, New York, and Hawaii. Falling mortgage interest rates could trigger the end of this one.

The recovery in housing will be tempered by three negatives, SMR said.

First, borrowers with low credit scores may be unable to participate. Second, existing home owners who owe more money than their homes are worth may find it difficult to move until prices firm up.

Third, there is another type of housing "bubble" that may still exist, SMR said. It is the difference between home purchase downpayments and household savings.

SMR cited IRS data showing a big increase over 10 recent years in the percentage of tax filers reporting zero taxable interest income, implying no available cash savings. It is more difficult and expensive today to get 100% home purchase financing, so most buyers must have some downpayment funds.

Still, even though these problems will make the housing recovery modest, they will not prevent it from coming, SMR said.

In its analysis of the house price/income bubble, SMR used gross household income data from the Census Bureau as well as per capita disposable incomes from the Commerce Department's Bureau of Economic Analysis.

The firm used house price data reported separately by the Census Bureau on newly constructed homes and from the National Association of Realtors on existing homes.

In addition, SMR compared income trends to required average monthly mortgage payments under prevailing annual interest rates from 1990 through February, 2008. Results showed that gaps created from 2002 through 2006 are now closed.

SMR's annual Giants study also includes the firm's complete coverage of full-year 2007 mortgage originations and servicing data by lender and for the industry, plus new measures of loan delinquency, foreclosure, and other industry and company statistics.

Founded in 1984, SMR Research Corp. is the nation's largest provider of industry research studies on mortgage and home equity loan subjects.

Good news for the real estate market

I was trading emails with a potential buyer from England today. As you probably know the Euro is very strong against the dollar. For Canadians and Europeans Florida is turning out to be the perfect storm for them. Prices here are down significantly and their currency is very strong against the dollar.

One of the comments I found interesting was, "I find the prices in Sarasota amazing! We should all move to Florida."

Foreigners are interested in our real estate market

Prices are down 30%-40% since the market highs of 2005

Mortgage rates are low

Lenders are loosening up credit just a bit (but not too much)

An administration change in Washington will increase confidence with many Americans

There is pent up buyer demand

Home construction is very low meaning few new homes added to the market

With the volatile stock market some people will put their assets in real estate

Property tax relief on the way

N.J. appraiser finds ‘test pricing’ doesn’t work

NEW JERSEY – Nov. 2, 2007 – Home sellers who list at a high price to “test” the market do themselves a disservice, according to research by a New Jersey appraiser – their homes spend more days on the market and eventually sell for less than similar homes priced realistically from the start.

New Jersey-based appraiser Jeffrey Otteau of Otteau Valuation Group Inc. conducted the research of sales in a declining market in the first six months of 2007. In his analysis of 4,500 home sales mainly in North and Central Jersey in the $500,000-to-$700,000 range, Otteau first looked at homes that sold within one month of listing. He found that the median asking price was $599,900 and the median sales price was only slightly less at $599,000.

However, the disparity was greater for homes on the market longer than one month. In that group, the median asking price was $634,900, and the median sales price was $585,000. Otteau believes the higher price immediately turns off many buyers and, if prices are falling, becomes even more overpriced three months later if the house languishes on the market.

According to Otteau, many buyers fear that home prices will continue to decline and are afraid to make a commitment. But if a home is priced slightly below the competition, it not only attracts immediate attention, it also assures buyers that they won’t have to worry about local median prices falling a bit more.

“Overpricing extends days on the market and guarantees that you will sell your home for less in a declining market,” says Otteau.

Stock market rallies to new highs while Citigroup upgrade home builder stocks

Home-builder stocks rose Monday (October 1st, 2007) after a Citigroup analyst raised his stock ratings on several of the sector's largest companies on signs the worst may be behind the the housing industry.

Stock markets rallied into record territory yesterday as investors bought back into the banking and housing sectors, a sign that Wall Street could see an end to the summer’s subprime housing woes and a lower risk of recession.

“The market believes that the crisis is over,” said William Rhodes, the chief investment strategist of Rhodes Analytics, a market research firm. “Whatever problems emerged last quarter are last quarter’s problems. They’re over, that’s it, they’re done. So let’s move onto the next thing.”

“We’re beginning to know what we didn’t know a few weeks ago, and with some uncertainty being removed that gives investors a little more confidence to dip their toe into the market,” said Todd Salamone, director of trading at Schaeffer’s Investment Research.

It looks like Wall Street is starting to shake off the credit/mortgage crisis. It will be interesting to see how the next few months play out. Remember, that the sum-prime mortgage markets makes up a very small percentage of total existing mortgages.

With prices down, low mortgage rates, the Federal Reserve actively cutting rates, and so much talk and effort to reform property taxes and insurance the fundamentals are looking much better. Once confidence in the housing market gets better the fence sitters will start buying. We should have a busy winter season.

Contrarian investor - they seek opportunities to profit from situations when the crowd mentality leads to unreasonable valuations for assets, either on the upside or the downside.

Luxury consumers more interested in 2nd homes

Nearly half of the nations wealthiest residents may purchase a 2nd home in the coming year according to a survey recently completed which polled 301 of the nation's homeowners whose primary home is valued at more than $1 million ($2 million for California residents), and who have investable assets of more than $1 million.

Some of the other interesting findings include:

The number of people who stated that they may buy a 2nd home in the next year increased from 30% to 40%

Women were more positive about their home values than men.

58% believe their residence will increase somewhat over the next 5 years while 36% believe their values will increase significantly.

Of the buyers looking for a 2nd home, 40% said they wanted one for family use, with 38% buying for investment purposes and 22% purchasing for retirement reasons.

43% of the respondents want to move their primary residence to a beach, bay or lakefront location, and 41% want to move to be closer to recreational activities like golf, swimming and tennis. This news bodes well for Sarasota, FL real estate.

New home sales jump, but median prices fall

Sales of new homes jumped substantially in April. The jump in sales was the largest in 14 years, though the median price of a new house dropped by the largest amount on record. Many around the country welcome this news and stabilization in the real estate market.

From March to April sales of single family homes jumped 16.2 percent but the median new home price declined a record 11.1 percent. The drop in price was needed. Home prices need to be tied to affordability. In many parts of the country, including Sarasota, the market became overheated by speculators and home prices were unrealistic and unsustainable. Now prices are dropping and getting more in line with what people earn. The Sarasota real estate market has gone through a cleansing process and we may currently be at an equilibrium. Prices could soften a little more but I don't think it will be dramatic. If you are currently a buyer and find the right house with a realistic seller I don't think you will gain much by waiting.

"We've hit bottom. This is it," said Lee Wetherington, president of high-end home builder Lee Wetherington Cos. "From here on out, it's going to be more positive." Wetherington said that the national report reflects what he is seeing in prices and sales in this region. His Lakewood Ranch company's sales have risen by about 20 percent this year. But Wetherington Cos. cut its prices by 20 to 25 percent overall since the market softened.

Pat Neal, president of Lakewood Ranch-based Neal Communities, has seen similar changes in the market."Our May results are better than May of 2004, 2005 and 2006," Neal said. "We've sold 14 homes this month with an average price in the high $500,000s."

Best Places to Retire Young

Sarasota, Florida was picked by Money magazine as one of the best places to retire young.

Money magazine - "...you will discover some of the most splendid architecture anywhere in the Sunshine State. It also boasts pure white sands, exotic birds and plants, boating, water skiing, opera, ballets.

It is always good to hear positive news about Sarasota. As prices have dropped over the last few years there are plenty of properties to choose from. Currently there are:

Sarasota Homes

• 1,241 under $300k
• 1,613 from $300k to $500k
• 874 from $500k to $750k
• 488 from $750k to $1,000,000
• 974 over $1,000,000

Sarasota Condominiums

• 1582 under $300k
• 758 from $300k to $500k
• 744 from $500k to $750k
• 367 from $750k to $1,000,000
• 433 over $1,000,000

Why People Come To Florida in the Winter

Weather highs for Friday, February 9th:

Detroit: High: 21°F - Feels like: 8°F
Minneapolis: 7°F - Feels like -7°F
New York: 31°F - Feels like 17°F
Richmond: 39°F - Feels like 31°F
Newark: 32°F - Feels like 17°F
Columbus: 22°F - Feels like 10°F
Boston: 28°F - Feels like 13°F
Chicago: 19°F - Feels like 5°F

Sarasota: 72°F - Feels like 72°F

The Concession wins award for best new private golf course

Golf Digest has recently named The Concession as the best new private golf course in the country.

The concept began in 2002, when British-golf-hero-turned-Sarasota-resident Tony Jacklin read that developer Kevin Daves was planning a Jack Nicklaus-designed course in the area. Jacklin, champion of the 1969 British Open and 1970 U.S. Open and four-time European Ryder Cup captain, called Daves and said he wanted to be involved. Over a subsequent lunch, Jacklin suggested the club might have a Ryder Cup theme and gave Daves a photo for the clubhouse. It depicted Jacklin and Nicklaus in 1969, moments after Jack had conceded a par putt to Tony that resulted in the first tie in the history of the Ryder Cup.

Daves saw more than a photo. He saw a marketing scheme. He'd call his course The Concession. He'd use a silhouette of the photo as his logo. He'd have Jacklin work with Jack on the project.

Go to my Concession page to see all of the homes for sale. Give me a call if you would like to see any of them 941-812-6272