Trulia: Buying Beats Renting Despite Rising Home Prices

By Robbie Whelan

To buy, or not to buy, and instead to rent? That, as ever, is the real-estate question.

Consumers often look to buy-vs.-rent comparisons and indices to make big decisions about housing. So as home prices rise and the recovery progresses, which side is up these days?

Trulia, the real-estate listings and data firm, has come out with a new analysis of this question. The answer? Buying is still resoundingly cheaper than renting, in basically every corner of the country, and you’d be better off buying, unless you: can’t qualify for a low mortgage rate; you don’t itemize your tax deductions; or if you plan to move within two to three years.

That said, buying has become slightly less attractive, when compared with renting, than it was a year ago. In early 2012, buying was 46% cheaper than renting. Today, it’s 44% cheaper. That’s because of rising prices. But falling mortgage rates (Freddie Mac reported Thursday that the average rate on a 30-year fixed-rate mortgage is 3.54%) have reduced the cost of buying, tempering the effect of rising home values. A year ago, for example, the average 30-year fixed-rate loan came with an interest rate of 4.08%.

“Home prices rose faster than rents, but with low mortgage rates, it’s better to buy than to rent everywhere,” says Jed Kolko, Trulia’s chief economist. “What’s surprising is that it’s still 44% cheaper to buy than to rent, despite the fact that home prices are rising.”

Of course, the results of Trulia’s study vary from place to place. In Detroit, where the housing market has been decimated by years of job losses and a painful crash of the subprime lending market, it’s 70% cheaper to buy than to rent. Most of the steepest buy-to-rent discounts are in Midwestern cities, including Dayton, Ohio (64%); Gary, Ind. (63%); Cleveland (64%); Warren/Troy/Farmington Hills, Mich. (63%); Toledo, Ohio (62%); Memphis, Tenn. (62%); and Kansas City (60%).

Buying is least attractive compared with renting in coastal markets, where supply is constrained, home prices are recovering quickly and home values are traditionally quite high. San Francisco leads the pack in “unaffordability” of for-sale property versus rental property—the discount to buying vs. renting is just 19%. It’s followed by Honolulu (23%), San Jose (24%) and New York City (26%).

San Francisco is a more nuanced case, however. A year ago, buying was 35% cheaper than renting. The reason for the dramatic drop, according to Mr. Kolko, is the surge in new construction. As the Journal reported, housing starts continued to rise in February. Although most of the monthly gains were in single-family housing construction, markets like San Francisco have mostly seen construction of multifamily rental buildings, rather than one-family homes.

For Buying or Selling, it helps to have a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at rashid@rashidrealty.com. More to follow within the next couple of weeks.

Housing Recovery Hovers at 50% Mark

Each month, Trulia’s Housing Barometer charts how quickly the housing market is moving back to “normal.”  We summarize three key housing market indicators: construction starts (Census), existing home sales (NAR), and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.

In January 2013, construction starts slid, while home sales and the delinquency + foreclosure rate both improved slightly relative to December:

Construction starts fell monthly, but were still up sharply year-over-year. Starts were at an 890,000 annualized rate, down 8.5% month-over-month but up 24% year-over-year. The month-over-month decline was relative to a December spike in multifamily housing starts, which tend to be volatile. January starts were at their second-highest level since July 2008, and single-family housing starts were at their highest level since that same month. Furthermore, residential construction employment was up 2.6% year-over-year in January – outpacing employment overall, which rose 1.5%. Construction starts are now 40% of the way back to normal.

Existing home sales edged up. Sales rose slightly to 4.92 million in January from 4.90 million in December. Year-over-year, sales were up 9%. But the mix of sales is shifting from “distressed” sales — foreclosures and short sales — to “conventional” home sales. Excluding distressed sales, conventional home sales were up 29% year-over-year in January. Overall, existing home sales are 66% back to normal.

The delinquency + foreclosure rate improved. After holding nearly steady for three months, the share of mortgages in delinquency or foreclosure fell in January to 10.44%, from 10.61% in December. The January rate is the lowest level since December 2008. The combined delinquency + foreclosure rate is 43% back to normal.

Averaging these three back-to-normal percentages together, the housing market is now 50% of the way back to normal, down from 52% in December. That’s the first setback since June. Cause for alarm? No: the Housing Barometer reached 52% in December thanks to what looks like a temporary spike in multifamily housing starts. Even with this backward step in January, 50% back to normal represents steady progress. But January’s figures are a reminder that housing indicators often have monthly swings, and the longer-term trend is a better guide to the shape of the housing recovery.



WRITTEN BY
Jed Kolko, Chief Economist

Three Reasons Why Housing Inventory is So Low

by Mike Simonsen

There’s no question about it, the operative theme of the 2013 housing market is restricted supply. Ever since the bubble burst in 2006, we’ve been hearing about the dangers of over supply, of the massive “shadow inventory” out there. Yet we’re living in a vastly different reality. There are 40% fewer homes on the market now than there have been during February in the last few years.

Inventory of actively for sale homes. Single Family Homes. Altos 20-city (national) composite. Data as of February 22, 2013. Source: Altos Research

Mid-January typically marks the seasonal low of available housing inventory. The fewest homes are on the market after the holidays. But pretty quickly they start coming on the market to prepare for spring. Inventory gets added until the first week of July, when people start looking forward to the Autumn.

Last week we commented about the rising prices that have resulted from this restricted supply. Imagine what would happen to the price of oil if Saudi Arabia, Russia, The US, China, Iran, and Canada were all offline.  It’s a, ahem, crude analogy, because housing is less a commodity than oil. But the fact is, we’re facing unprecedented few homes available for sale.

Why is that? What happened to all this “Shadow Inventory” that was going to dump on to the market?

You can boil the low-inventory reality down to three primary factors:

Under-Construction

Since 2007, new housing starts have been anemic. The long-term average construction rates are about 1.5MM homes per year. In the last six years, we’ve averaged well under 1MM. And since 2009, the average is closer to 500,000. Meanwhile population and household formation keeps on trucking. The over-construction that happened in the bubble is a distant memory. See the chart to the right. Construction volume under the orange line are “undersupplied” conditions. The homebuilders imploded so profoundly after the bubble, that we haven’t had this few new homes being built since 1959.

Expect this trend to continue for several more years. It’s difficult to ramp up housing production quickly. And we’re a long way below normal.

Inventory of actively for sale homes. Single Family Homes. Altos 20-city (national) composite. Data as of January, 2013. Source Census Bureau via themortgagereports.com

The Reverse Shadow Inventory Dynamic

Rising home prices have led to fewer, not more, existing  homes coming on the market. You might call this, ironically, the “Reverse Shadow Inventory” dynamic.

When the Shadow Inventory meme emerged during the bubble, the bearish argument followed: As soon as home price tick back up, there are going to be millions of people (and banks) who want to unload. Therefore supply will rise and prices will fall again.

In actuality, it seems the psychology has been reversed: As prices have climbed, those who (still) own their underwater homes finally see light at the end of the tunnel. The longer they hold, the closer they are to recovery. Why sell now if you don’t have to? Maybe you’ll make it out alive!

Banks are acting similarly. The owners of underwater mortgages have no incentive to unload quickly. Their assets are appreciating. Furthermore, as home prices increase, fewer and fewer people are at risk of default. The Shadow is shrinking in the noon-day sunshine of rapidly re-inflating home values.

Government Policy

Finally, it is no coincidence that essentially all housing policy, all programs, laws, and incentives have been focused on stimulating demand and restricting supply. The Fed is aggressively keeping interest rates low. HARP, HAMP and related mortgage crisis programs are designed to keep people in their homes. They have been successful. Politically, it’s near impossible to institute a program that might help home buyers. For whatever reason, the bureaucrats are much more fond of home owners. That’s unlikely to change.

We’re in a hangover of short supply after the burst bubble. Low new construction, low incentive for existing homes to sell, and a government that wants people to stay put. Like a good hangover, these are long, slow, painful conditions.  We’ll ease slowly out of the fog in the next few seasonal cycles.

Short Sale Tax Relief Expires December 31, 2012

The tax relief law that allows certain qualifying homeowners to exclude from income certain debts that have been forgiven by their lender is set to expire December 31, 2012.  Why is this important now?  Because it can take up to 6 months to receive formal short sale approval and close a short sale escrow.  

According to a recent article in the Los Angeles Times, when this provision expires Sellers who participate in short sales  WILL have to report the debt relief they receive from the short sale lender as income on their federal tax returns.  As of today, the tax break is not extended, so time is of the essence …

The following are the main items that escrow looks at/needs when processing a short sale:
1.  Short Sale Addendum to the Purchase Contract
2.  Real Estate Commissions
      a.  Escrow will use the Short Sale Approval letter to determine permissible broker commissions (regardless of what the listing agreement states)
      b.  MLS should provide clear provisions  for short sale lender commission changes
3.  Written Short Sale Approval Letter
      a.  Escrow will verify that the Sales Price and Proceeds amounts match what is stated on the Short Sale Approval letter
      b.  In the case of proceeds to the Lender, escrow will confirm that they receive, at a minimum, the amount stated on the Short Sale Approval letter
      c.  Escrow must close within the stated timeframe or an extension and an updated Short Sale Approval letter will be required

In order to prevent closing delays, Sellers should be made aware of the fees that Short Sale Lenders may not approve and/or require additional information (see a limited, non-inclusive list below).
•      Short Sale Negotiator Fees
•      Home Warranty
•      Retrofit Work *
•      Termite Work *
•      Delinquent Property Taxes**
•      HOA fees***

*   Short Sale lenders typically approve the inspection fee but not the actual retrofit or termite work
**  Resubmission to the short sale lender for a revised short sale approval letter may be needed (and may cause closing delays)
*** Short Sale lenders may approve payment of HOA dues but not always approve delinquencies or certain other HOA fees such as Transfer fee or Document Fee

Typically when the Short Sale Lender does not approve the Seller’s payment of certain escrow/closing fees, the costs may be paid for by the buyer provided its permitted in the Short Sale Approval letter.

This post highlights only some of the provisions of the bill , please revert to the actual bill for specific information
http://www.govtrack.us/congress/bills/110/hr3648/text

For Buying or Selling, it helps to have a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at rashid@rashidrealty.com. More to follow within the next couple of weeks.

California Homeowner Bill of Rights signed into law

California Governor Jerry Brown signed into law the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California's housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.

Making sense of the story:

• The Bill of Rights prohibits “dual track” foreclosures that occur when a mortgage servicer continues foreclosure while also reviewing a homeowner’s application for a loan modification.
• Under the new law, homeowners must be provided with a single point of contact when negotiating a loan modification.
• It expands notice requirements that must be provided to a borrower before taking action on a loan modification application or pursuing foreclosure.
• Additionally, the bill allows injunctions against foreclosure until violations are corrected and permits civil penalties against servicers that file multiple, inaccurate mortgage documents or commit reckless or willful violations of law.
• These new laws make California the first state in the nation to take provisions in the National Mortgage Settlement, which covered the nation’s five largest mortgage loan servicers, and apply those rules to all mortgage servicers.
• The law will go into effect January 1, 2013.

Read the full story: http://on.car.org/N3TUdT

For Buying or Selling, it helps to have a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at rashid@rashidrealty.com. More to follow within the next couple of weeks.

Tips for the Moving Day!

Moving can be a stressful time, however, there are several things that you can do to make your move a smooth one. If you know that you're moving ahead of time, it's a good idea to start packing as early as possible. Remember, Rome wasn't built in a day and, unless you have to be out in a hurry, it's better to take your time and remember every little detail now than to find yourself with the moving blues later.

A Little Goes A Long Way

If at all possible, pace yourself when packing. It's better to pack a little at a time and make sure that nothing is forgotten than to hurry and try to get everything done within a day or two. It's easy to forget to have your address changed, turn off your phone, internet, water and/or cable service, so take the time to make sure every little detail is ironed out now so that you can enjoy your new home later.

Have A Moving Sale

Get rid of everything that you don't need by having a moving sale. If you haven't used it within a year, sell it. Otherwise, you will just end up with the same clutter in your new house as you've had in the one you're leaving behind. Plus, the more you sell, the less you will have to pack and move. Not to mention, moving is expensive and there's nothing wrong with earning a few extra bucks whenever possible.

Create A Packing List

It will help you to remember things much easier by writing them down on paper as they come to mind. A packing list can act as a shopping list, which will remind you of the things that you need to remember.

Pack Lightly

Moving day is hard enough, so don't make it any worse by loading down your arms with too much weight. If you pack lightly, it may cost you a little more footwork, but your body will thank you at the end of the day.

Pack Smart

Because of their design, boxes are easier to carry and provide an effective way to keep everything stored safely in its place. Rather than just piling everything into the car or U-Haul and hoping for the best, take the time to pack everything carefully (especially breakables) inside of a box. What will not fit, such as furniture and other household essentials, should be tied down and placed in a moving truck. Furniture pads are also a good idea to prevent damage during the move. Make sure you label each box with the contents of each box along with the room it will go in at the new home. This will make unpacking more efficient and save you time.

For Buying or Selling, it helps to have a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at rashid@rashidrealty.com. More to follow within the next couple of weeks.

8 reasons FSBOs should list with a Realtor

Ask yourself: What would Colby Sambrotto do?
By Bernice Ross


Here are some of the key factors that deter most homeowners from selling without an agent.

1. The decline of print advertising as a major lead generator
In the past, newspaper ads would produce a fair number of calls on FSBOs. Today, a three-line ad in the local newspaper has little chance of competing with the wide array of information online, including video, color photos, 360-degree virtual tours, and a wealth of community and lifestyle data.

2. Buyers seek rich content
IDX and VOW solutions, Realtor.com, Trulia and Zillow provide access to virtually all the listings in most market areas. Most buyers comb these major sites simply because it's more efficient than searching for single properties.

3. Instant gratification
A third problem for FSBOs is that people who surf the Web usually are seeking instant gratification. In fact, most visitors will only visit a website once and stay for 15-30 seconds. If the FSBO has no strategy for capturing the lead's contact information or for immediately following up, the lead moves on to the next website. Even if the Web lead does contact the FSBO, unless the buyer gets back to the FSBO quickly, that lead is gone.

4. Buyers want the savings
Even for those who do search for FSBOs, most buyers automatically deduct 6 percent from the sales price because they want the savings in their pockets, not the seller's. The result is that many FSBOs end up selling for up to 20 percent less on average as compared with sellers who hire a Realtor.

5. The needle-in-the-haystack effect
A major challenge for FSBOs is the needle-in-the-haystack nature of the Web. There are millions of websites including the hundreds of thousands of company and agent sites. Without search engine optimization, meta tags and a host of other branding strategies to achieve high Web placement, the probability of the Web buyer finding the FSBO's single listing online is small.

Of course, the buyer could post on sites such as ForSalebyOwner.com, ByOwnerMLS, or utilize the "Make Me Move" feature on Zillow. The challenge is that unless the buyer specifically wants to purchase a FSBO, it's much more efficient to search on the brokerage or MLS sites.

The FSBO could also put his home on Craigslist. There are two challenges, however. First, the FSBO has to repost the ad regularly for it to appear near the top where it can be found. Second, there have been so many rental scams and unsavory people using that site to identify targets for possible criminal activity that listing there could be a major safety issue.

6. Web leads are reluctant to share contact information
Another issue FSBOs must face is that most Web buyers are reluctant to provide contact information to a stranger, especially during the search process. Instead, buyers identify homes they want to see and then normally contact a single agent who can show them everything they want to see, not just a single home.

7. Availability for showings
Because FSBOs don't have lockboxes, that means the FSBO will need to be present for every showing. There are numerous challenges with this situation, the most important of which is safety. Is the person who wants to see your house legitimate or not? Even if you accept an offer from a potential buyer, how do you know whether the person meets the income and credit requirements to close the deal?

8. The proof is in the pudding
Here's a great closing question for sellers who believe that becoming a FSBO is a smart move. Did you know that Colby Sambrotto, founder of ForSalebyOwner.com, which is one of the most popular and robust FSBO sites on the Web, ended up listing his home with an agent AND paying a full commission?

If he couldn't get the job done for himself using his website, how effective do you think this approach will be in getting your home sold for the highest possible price in the shortest amount of time?

For Buying or Selling, it helps to have a guide that gives you straight answers. For more information on buying, selling, or renting out an income property in San Diego, please call Frank Rashid's cell phone at (858) 676-5250 or email him at rashid@rashidrealty.com. More to follow within the next couple of weeks.