Monday, March 28, 2011

Current Real Estate Market Trends in Delaware, Pennsylvania, New Jersey

Current real estate market trends in Delaware, Pennsylvania and New Jersey are a buyer’s dream.  It’s useful for buyers relocating to any city in the tri-state area  to evaluate real estate market trends in the area as a whole. Anyone relocating from the west coast, say, to Philadelphia will likely find a home in Wilmington to be within a reasonable commuting distance to the larger city. The towns of Cherry Hill, Princeton and Plainsboro in southern New Jersey also provide great neighborhoods within a comfortable commute to Philly. And equally, there are numerous people from Wilmington who commute to southern New Jersey for work.

Real estate trends in Delaware, Pennsylvania and New Jersey, like the rest of the country, are not pretty. One good indicator for real estate trends in the tri-state region is the number of housing permits being issued in the area for new residential construction. The Federal Reserve Bank of Philadelphia reported on Monday that, in February of this year, single family residence permits declined in Delaware, Pennsylvania and New Jersey by 11.1%, 38.1% and 26.6%, respectively. Meanwhile, the rest of the country showed an average increase of just under 1%. The obvious reason for the decline in housing starts is the existing home inventory currently on the market, and the so-called shadow inventory of homes likely to be foreclosed upon, both at historic highs. When discussing real estate trends, inventory is expressed in terms of months to sell all the homes on the market.  The tri-state region has a challenging number of homes on the market. With regards to the shadow inventory alone, Delaware, Pennsylvania and New Jersey have 30,29, and 51 months of inventory, respectively, to plow through. (See the url below.) A normal market would have some 7 months supply of homes currently being marketed. The shadow inventory of homes likely to come on the market due to foreclosure but not yet being marketed, however, is typically not even a point of discussion among real estate professionals in a normal market. So, needless to say, there is still significant price pressure on homes in Delaware, Pennsylvania, and southern New Jersey.

The take away from all of this is that, if you are being relocated to anywhere in the Delaware, Pennsylvania, New Jersey tri-state area you will have a significant selection of homes to chose from.  Furthermore, sellers who are determined to sell their homes in such a glutted market will be aggressive in their pricing from the beginning. If they’re working with smart real estate professionals they will already know that prices are expected to decline further, and if they want to sell now they had better come to grips with that and market their home at a compelling price. The bottom line, if you’re relocating here you’re going to find very attractive real estate market trends throughout the tri-state region.

Shadow inventory supply:

Wednesday, March 23, 2011

Useful Little Maps and Graphs from the National Association of Realtors

College students across the country are familiar with the ritual of checking the professors' bulletin boards for one's test scores and class standing to be posted - always discreetly by student ID. The National Association of Realtors has recently posted the scores, so to speak, of the individual states' shadow inventory. You can check out your state's standing of shadow inventory compared to the rest of the country. It's interesting, but more importantly, it's a valuable rough competition gauge if you're considering placing your house on the market. You might hold off if there is a lot of shadow inventory poised to come on the market and compete with your home. On the other hand, there are markets in the country that are below average for shadow inventory - maybe you should make your move now. Click on the links to see the graphs.

Map of percentage of properties currently on the market that are distressed sales:

The 26 states with the highest level of shadow inventory:

The 25 states with the lowest level of shadow inventory:

Map of the number of months it will take to clear the shadow inventory by state:

Tuesday, March 22, 2011

Reading Between the (Property) Lines

A recent statement by NAR (National Association of Realtors) Chief Economist Lawrence Yun is revealing:  "Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers."  The "unnecessarily tight credit" is not news, real estate professionals have been complaining about that for over two years now.  It's the second remark that I find interesting - contracts being cancelled due to homes not appraising for the agreed upon sales price.  It hints to me that there are buyers out there willing to step up and come closer to a seller's asking price.  I've been blogging and preaching to any client or prospective client that will listen that indications in the market place are such that home values are expecting to decline further through mid-year 2011, and that perhaps towards the end of the year we may find some stabilization, maybe even a return to more historical property valuation in the 3% range.  So, the interesting part is not so much that the properties don't appraise, but that it suggests there is price support among buyers right now.  To me, it's evidence of that so-called pent-up demand that every real estate professional in the country is hoping is real and will soon be released from the forces that are keeping it plugged.

Thursday, March 17, 2011

Lions and Tigers and MERS - Oh My!

When I was a little boy, four years old I think, I saw "The Wizard of Oz" for the first time.  It frightened me so much that I hid behind the couch, peeking every so often over the back of it to try and follow along.  Something about those flying monkeys gave me such a case of the heeby jeebies.  I've got 'em again!

The New York Supreme Court ruled a few days ago that MERS (Mortgage Electronic Registration Systems) has the right to foreclose on delinquent mortgages. MERS has already prevailed in New Hampshire, California and Kansas. Is your state next?

This can't be right.  Is everyone clear about what MERS is and what it does?

I submit that one of the reasons America has become the most prosperous nation on earth is because property rights are so clearly defined, vigorously defended, and publicly delineated.  Anyone in the world, and that means literally anyone, can go down to your county courthouse and ask to see your deed.  It is a public record.  It is this transparency that makes it such a valuable asset.  No one can dispute that you own it - again,  it is a matter of public record.  Now that's not to say that there are never any errors in the public records, no foul-ups ever committed in the process of recording a deed.  There are, in fact, some busy attorneys that bill a lot of hours embroiled in challenges to property rights.  By and large, though, they are statistically rare compared to the enormous volume of property transactions that take place in the United States in a given year.  It is a fact that it's a somewhat convoluted process to painstakingly record every single property conveyance that takes place in your county.  But, again, it's the fact that it happens that makes your property worth something.  Because you can prove you own it, you can sell it.

And what does MERS have to do with this?  MERS is a streamlined process to record transfers of mortgage and real estate instruments.  It is not, let me repeat, it is NOT a transparent process.  There is a group of "too-big-to-fail" banks that have created a club for their convenience to streamline the process for bundling mortgages into mortgage backed securities.  In order to record the transfer of mortgages without having to go through the oh-so-annoying tedium of waiting in line at the courthouse for each and every transaction, someone hatched the idea that they could just keep an electronic registry and that they would all agree among themselves it would be correct, and legal, and moral - because it is in the interest of commerce, after all.  It would also be, very conveniently, private.

Each bank can, because they decided it to be so, certify whoever they chose to be the recorder of mortgage transfers.  There is no qualifying process, no professional certifying board that oversees who is an authorized  recorder of this electronic registry.  The wicked witch of the east (MERS) has her little monkeys flying around the electronic countryside doing her bidding while she stirs her cauldron of mortgage documents into a thick murky soup.

I'm not an attorney - but I don't think I have to be one to conclude that MERS is, at the very least not fair, and probably down-right, blatantly, illegal.  How can it be right, that a process that is meant to be transparent and naked for all to see, should be sequestered and hidden away by a very tiny group of bankers?

"Come here, my little pretty..."

Thursday, March 3, 2011

The Beige Book Is Out - Or What Does Your Lunch Money Have To Do With Your Landlord?

So, the Feds famous (or infamous, depending...) Beige Book is out with current trends on all things economic in the country. The overall consensus appears to be modestly positive. The caveat is that the real estate market is still moping along. Kerry Curry, writing in the Housing Wire e-zine makes the following assessment based on a read of the Beige Book:

"Reports on home prices were mixed. Atlanta and Kansas City observed persistent downward price pressure. Home prices continued to fall according to Philadelphia reports, but mainly at the high-end of the market. Cleveland and Chicago contacts described prices as little changed.

The outlook for residential sales and construction improved marginally, although activity is expected to remain at low levels. Kansas City contacts anticipate a seasonal surge in sales activity this spring. Atlanta, Dallas and San Francisco also expect modest improvement, while little to no sales growth is expected among Philadelphia contacts. A slight uptick is expected in Chicago and San Francisco construction.

Several districts indicated improvements in commercial real estate sales and leasing activity, including Boston, Richmond, Chicago, Kansas City, Dallas and San Francisco. But most reports characterized nonresidential construction as weak."

My friends and clients in the greater Philadelphia region will be interested the comments about our area. I really am not a pessimist about the market (I feel a need to keep reaffirming that) but I am a realist. The real estate market in this area is still experiencing downward pressure. If you want to sell a property you must, absolutely MUST, keep that in mind as you think about your pricing strategy. There are a bajillion (to use my teenagers parlance) properties of every stripe on the market right now, another bajillion that the owners would like to sell but are waiting for a better climate, and still another bajillion that the banks are circling like vultures. 

My opinion - we have another couple of years of depressed real estate prices. Meanwhile, inflation WILL enter from stage left (some will say stage right but the democrats are responsible for most of the stimulus, which will be the catalysis for rising prices) and start to eat away at the average family's budget. My evidence for that - it's happening right now. Oil is going up, gasoline is going up, and there is growing worldwide pressure on agriculture which will result in higher grocery bills for all of us. And rents? They will have to rise as landlords struggle to keep up with the costs of maintaining their properties.

And what about interest rates? They are at the bottom, really. Can they go lower? I remember my grandparents telling me they bought their first house with a 3% loan from their LOCAL bank. The down-payment? A solid 25%. Do you think any bank will go to 3% in this environment? The average first-time home buyer still wants at least 95% loan-to-value. What bank is going to give out 95% loan-to-value at 3% - not going to happen.  So, interest rates my hover where they are for a time, but there is no where else for them to go but up.

In the final analysis, the time to buy real estate is RIGHT NOW. Lock in your rate. Everyone is on the money talk shows saying that you can't think of your house as an investment, it is shelter only. What they need to emphasize is that it is FIXED COST shelter. Your mortgage will not increase along with everything else you have to buy, thus providing stability in the largest piece of your budget pie.  If you continue to rent your housing costs will rise along with everything else, and then you'll have to use your lunch money to pay the landlord. (That's right - my sub-title was a shameless hook to get you to read the whole piece.)

Tuesday, March 1, 2011

Sound Matrix – Steady Clappin'

Sound Matrix – Steady Clappin'

The Oracle From Omaha Speaks

Warren Buffet has announced that we've hit the bottom of the housing market - it's all going to get better now.  (You can read the article here:  Is he trying to create self-fulfilling prophesy?  That might actually be effective coming from the Oracle of Omaha.  Let's hope it's a prophesy that catches on.  BUT -  the National Association of Realtors, an organization that puts a great deal of effort into understanding real estate trends, is showing a decline in sales, at the same time Warren announces his increase.  I am truly not a pessimist and would love for him to be right, but the forces needed to improve the market just are not there yet - namely JOB GROWTH, DECLINING UNEMPLOYMENTS STATS, and AN IMPROVING JOB MARKET that really FEELS like it's improving to the average person, whethere employed or seeking.  My redundancy is intentional.  It's the job market!