Saturday, June 29, 2013

Real Estate Outlook

After the last 5 or 6 years, I view the business of real estate with eyes wide open. I am no longer certain that real estate will always go up—although once that was the mantra and using a home as a piggy bank worked awfully well for many folks. But after seeing the reverse also be true, a bubble that could burst, I am being a bit more conservative just now.

So when clients say to me the market is growing too fast, I wonder if they are right, or if it's mearly just making up for lost time and getting back to normal. American home prices increased an average of 10.6 percent between March 2012 and March 2013. Here in the Suncoast, we're ahead of the National average.

To some this kind of growth has created the fear that the current market’s exuberance will re-create the steep incline and decline in home values that we all remember. But really, markets have cycles, and part of what made the last down cycle so extreme was the fact that lenders were greenlighting massive home loans to borrowers without requiring them to document their ability to pay for the property over the long term.

And remember, data can be a bit misleading. My old business partner Dennis Jolicoeur used to say, “figures don't lie, but liars do figure...”

When values have been very, very depressed for a long time, it simply doesn’t take much of an uptick to generate double-digit percentage point increases. When you look at Miami and Tampa – ranked among the hardest hit markets in the foreclosure crisis and resulting downturn, a little growth goes a long way to making the percentage change pretty astounding.

Lately we've heard of the investor groups buying up lots of low-priced homes. From big Wall Street limited partnerships to smallish investors, the “investor” share of the market is about 20% of the May home sales. But it was 22% in April, and the trend is for investor activity to decline as prices increase, putting a cap on the profits investors can realize.

Today as the investor activity is declining, buyer demand is increasing, as evidenced by increasing numbers of cash transactions, the number of offers per property and the shorting of the DOM (days on market) before a sale—the speed of homes leaving the market.

Here is a really healthy fact, first-time buyers are responsible for 36% of current buyer activity and repeat homeowners for over 43%. That's good news. And more good news is the new home builders (who are adding to the total number of homes far sale in our area) have been quite successful as well and have found the intestinal fortitude to raise their prices almost every month.

any sellers have finally been able to get out of the home they were trapped in. But find buying a new home is no picnic. Some have found themselves even having to rent a place until they can buy one. The good news as I see it is that none of the sales I have represented this year have required the seller to bring cash to the closing table—not like back in the day, say 1990—when about half my sellers had to write a check to their mortgage company to cover the “shortage” in the sale.

If you’re selling in a super-hot market, consider buying first, if you can. Or list your home with a Seller’s Contingency or a rent-back agreement (where your home’s buyer rents it back to you for a short time), to buy yourself some extra time to score a new place.

Last week’s reported 30 year mortgage rates were 3.94 percent, and 15-year rates were right around 3%.  This increase of rates is not likely to cause all the pent-up buyer demand of the last few years to dissipate.I bought a home when rates were 14% in the 80’s, and then put on an addition with a construction loan at 19%. Rates are cheap today and I will call them cheap until they get to 8 or 9%. Remember we are not talking about investments here, we are talking about shelter and people need and want a nice place to live. 
Finally, I have been asked if all the good deals have gone away—and the answer is yes...and no. There are always good deals out there if you are ready willing and able to buy--and there are no more good deals if you are not. My dad used to point to commercial properties as we drove down the highway near his boyhood home. “When I was your age I could have bought that corner for $1500,” he would tell me. “Why didn't you”, I asked. “I didn't have the money”, he said. And so it goes.

We can expect to have a higher-than-average number of foreclosed homes – REOs – on the market for some years to come. This so-called “shadow inventory” had declined over 10% nationwide between January 2012 and January 2013.  And with the uptick in demand, we should continue to see this so-called “shadow inventory” of homes decline as banks take the opportunity to get these homes off their books.

Dane Hahn is a real estate professional in Florida's Suncoast, serving Sarasota and Charlotte Counties. You can reach him by phone at 941-681-0312 or by email at See him on the net at

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