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Friday, August 2, 2013

The Real Estate Mini-Bubble Will Be Economy's Next Problem

The Real Estate Mini-Bubble Will Be Economy's Next Problem

Sy Harding, Contributor

The housing and automobile industries are the main driving forces of the economy – in both directions. That makes sense since consumer spending accounts for 70% of the economy, and homes and cars are the biggest ticket items consumers spend money on. More importantly, unlike most purchases, it’s not just spending the money they made last week, but through loans and mortgages it’s spending in advance money they will earn for the next five to thirty years.
That housing and autos therefore continue to be the economy’s main driving forces was dramatically demonstrated when both home and auto sales were so instrumental in driving the economy and markets higher after the 2000-2002 meltdown. And then when the resulting real estate bubble burst in 2006, housing and autos led the way down into the sub-prime mortgage catastrophe and then the meltdown into the 2008-2009 Great Recession.
Their powerful influence continued when in 2008 and early 2009 $trillions were spent, mostly on the bailout of banks and the rest of the financial sector, but the economy didn’t begin recuperating to any noticeable degree until the housing industry and automakers began their substantial recovery.
And they have indeed experienced a substantial recovery.
While the auto industry in Europe continues in recession (auto sales down 8.2% last year to the lowest level in 18 years), by 2012 U.S. automakers had jumped from reverse gear all the way into 4th gear, posting their highest annual sales since 2007, with the pace of sales continuing so far this year (although automakers missed the forecasts for their sales growth in July).
Meanwhile, for close to two years the real estate sector has been blasting through the most optimistic forecasts for its recovery.
At the end of May new housing starts were up a huge 28.1% year-to-date. Existing home sales had increased 15.2% over the previous 12 months. Home prices have shot up 12.2% nationally over the last 12 months, the biggest year-over-year jump since March, 2006 (near the peak of the housing bubble). Prices were up more than 20% in some of the trouble spots of the last housing bubble like Florida, California, and Las Vegas. It’s been hot. The National Association of Realtors reported two weeks ago that 47% of all homes sold in June were on the market for less than a month. As in the big bubble of 5005-2006, multiple bids and selling prices higher than asking prices have been fairly common.
However, there have been some troubling signs in the recovery, easily ignored because the basic numbers of sales and prices have been so impressive.
For instance, it’s no secret that the recovery has been mostly driven by institutional investors building inventories of rental properties. For them it’s all about profit. So far they’ve been able to take advantage of low interest rates and depressed home prices. But as prices rise and that opportunity fades away there are already indications they are dialing back on adding more homes to their inventory. Speculators looking for quick profits by buying at the distressed prices and flipping for a quick profit have also been significant factors in the sales numbers. RealtyTrac reports that single family home flips, where a home is purchased and sold again within six months, were up 19% in the first half of this year, and up 74% from the first half of 2011. But RealtyTrac expects that interest to also fade as bargain prices disappear, and is already seeing ‘buying to flip’ tapering off in many markets.
A sustainable housing recovery has always needed real home buyers who intend to live in the homes, and particularly a healthy percentage of first-time home buyers. We haven’t been seeing that, and we’re not liable to any time soon with the higher home prices and higher mortgage rates raising monthly mortgage payments significantly.
Meanwhile, even much of the reported increases in new home construction have been for multi-family housing for renters. As of June 30, single-unit housing starts were 67.6% below their January, 2006 pre-recession level.
And now we’re seeing the first indications of the mini-bubble potentially beginning to deflate.
New housing starts plunged 9.9% in June, to their lowest level in 10 months. Permits for future starts fell 7.5%. Existing home sales declined 1.2% versus the consensus forecast for a 1.5% increase. Pending Home Sales fell 0.4% in June. Construction Spending unexpectedly fell 0.6% in June, well below the consensus forecast for an increase of 0.5% (and the largest monthly decline in five months). And these reports are mostly from housing activity in the period prior to the spike in mortgage rates of the last six weeks.
The real estate sector led the way down into the financial meltdown and 2007-2009 bear market. It turned back up in early 2009 precisely at the bear market low even though housing sales and prices were still tumbling.
With the housing recovery potentially stumbling again investors would do well to keep an eye on the SPDR Home-Builder etf, symbol XHB, and home builder stocks like Toll Brothers (TOL), DR Horton (DHI), Pulte Corp (PHM), and Lennar Corp (LEN).
The Home Builder etf XHB was down more than 12% in May and June, but has been recovering some but lagging well behind the overall stock market’s spike to new highs.
Sy is president of and editor of the free market blogStreet Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.

Tuesday, July 30, 2013

Rosie O'Donnell Lists 2 New York City Apartments

Rosie O'Donnell listed two New York City properties. Her two-bedroom, 2.5-bath full-service condominium is listed for $2.25 million. The 22nd-floor unit features floor-to-ceiling windows with views of midtown Manhattan. She bought the property for $1.97 million in 2007, The New York Times says. The headquarters for her public school program, Rosie's Theater Kids, is a few blocks away.

Rosie O'Donnell's second Big Apple property is a four-bedroom Greenwich Village duplex that she purchased for $8 million last year. The 130 West 12th Street penthouse is now on the market for $10.95 million. 

Wednesday, July 24, 2013

5 things to know about rising rates

5 things to know about rising rates

After years of decline to rock-bottom levels, interest rates are on the rise. The average rate for a 30-year mortgage was recently 4.35%, more than a point above the 2012 low of 3.3%.

Whether you're buying, selling or refinancing a home, here's how to navigate the new environment.
1. No more record rates, but still cheap loans
If the economy continues to improve as anticipated, rates will keep inching up. Freddie Mac expects the 30-year to reach 4.7% by the end of 2014. IHS Global Insight forecasts that rates won't hit 6% until 2017.
2. The refi window is starting to close
The rate bump is already cooling off refis, but most homeowners with the equity and stellar credit to refinance have already done so.
If you didn't have enough equity to qualify, check again -- rising prices pushed 850,000 homes into the black in the first quarter, according to CoreLogic. Plus, the recovery may lead lenders to loosen up.
The average credit score for an approved mortgage has been 761, says the National Association of Realtors, up from the normal 720.
3. Higher rates won't scuttle the housing recovery
At worst, this turnaround will only dampen the pace of growth, says IHS U.S. economist Patrick Newport. A healthier economy is what's boosting prices. Rates would have to rise sharply to make a mark. "Going up three percentage points would be a major wet blanket," says Bob Walters, chief economist of Quicken Loans.
With prices rising, sellers can be patient. For buyers, mortgages are still historically cheap.
4. Once you're ready to buy, lock in
To avoid any short-term spikes, Washington, D.C., mortgage banker Frank Donnelly recommends locking in as soon as you can (typically when you sign a contract).
Most lenders won't charge for a 45-or 60-day rate lock. Pay for a 90- or 120-day lock only if deals close slowly where you live (ask your lender); the typical cost is a quarter of a point per 30 days. With a float-down option, you'll pay less when rates fall at least a quarter point. Skip that add-on unless it's free.
5. Fixed loans usually beat adjustables
You may be eyeing adjustables, which are up less than fixed loans. An ARM is the better call only if you plan to own your home for a short time.
"When you need five or six years, you might save with an adjustable," says Keith Gumbinger of the research firm
A monthly payment on a $250,000 mortgage is $1,194 with a 30-year loan at 4%, or $999 on a five-year ARM at 2.6%. But it's crucial to get a loan that matches your time frame.

Thursday, July 18, 2013

Vince Vaughn's Townhouse for Rent

This week in celebrity real estate, Vince Vaughn listed his Chicago townhouse for rent, Scarlett Johansson sold her L.A. condo and Octavia Spencer bought in the Toluca Lake neighborhood of the San Fernando Valley.

Vince Vaughn’s Chicago townhouse for rent
In Vince Vaughn's next big role, he'll play landlord at a property in Chicago. Or, at least, that's his hope. The comedic actor has listed his townhouse for rent for $9,500 a month.
This isn't the first time Vaughn has rented out the home. He first put it up for lease in 2010 at $7,000 a month. In 2011, the townhouse was back on the rental market for $8,000, and this time around, Vaughn is hoping a new renter will pony up that extra $1,500 a month.
The Chicago native bought the townhome in 2005 for $4.1 million, upgrading to a 7,800-square-foot duplex penthouse in the Palmolive Building just a year later. Rather than sell the townhome, he's kept it as an investment property, which seems to have done well for the actor.

Located in a "prestigious" City Club development, the upgraded townhouse has 3 bedrooms and 4 baths on a 4,063-square-foot floor plan. The home includes a 3-car garage, a custom-designed home theater with plush leather recliners and a rooftop deck with views of the city.
Actress Scarlett Johansson has sold her 1-bedroom, 2-bath unit in the Hollywood Versailles Tower for $470,000.
Actress Scarlett Johansson has sold her 1-bedroom, 2-bath unit in the Hollywood Versailles Tower for $470,000.
Scarlett Johansson sells Hollywood Boulevard condo
We imagine stars living in sprawling Hollywood estates, but sometimes a modest condo is more believable for an actress hopping between movie sets.
While formerly owning a stunning mid-century modern home with ex-husband Ryan Reynolds, Scarlett Johansson has also owned a 1-bedroom, 2-bath unit in the Hollywood Versailles Tower since 2003. Listing the place for $425,000 in May, she's now handing over the keys for $470,000, theLos Angeles Times reports.

Measuring 1,148 square feet, Johansson's former condo is average in size for a 1-bedroom, but hardwood floors, granite countertops and other high-end finishes add an air of luxury. The home is also filled with touches of Hollywood glam, from gold sinks in the master bath to a dressing-room vanity surrounded by stage lights.

Located at 7135 Hollywood Boulevard, Apt. 506, Los Angeles, Calif. 90046 in a full-service high-rise, the condo's shared amenities include a 24-hour doorman and valet, a pool, gym and recreation room.

Academy Award winning actress Octavia Spencer just bought a 1,714-square-foot home in the Toluca Lake community.
Academy Award winning actress Octavia Spencer just bought a 1,714-square-foot home in the Toluca Lake community.
Octavia Spencer buys in Toluca Lake
Closing on a Toluca Lake house and making a red-carpet appearance for her latest film "Fruitvale Station," Octavia Spencer's keeping busy.

The Academy Award-winning actress just bought a 1,714-square-foot home for $841,500, according to property records. In the world of Los Angeles real estate, anything less than $1 million is typically not used as a celebrity's primary residence. Time will tell whether Spencer moves in permanently.

While modest in size, the 1927 Spanish-style home is filled with character — from dark hardwood floors and plantation shutters to vintage tiles and original fixtures. The property is also in a great location: a block and a half from Toluca Lake boutiques and restaurants on Riverside Drive.

Spencer received several prestigious accolades including an Academy Award and Golden Globe for Best Supporting Actress for her role as Minny Jackson in the 2011 film adaptation of "The Help."