Photograph by John Moore/Getty Images

A housing development on May 3, 2013 in Denver, Colorado.

Cash-in has replaced cash-out as the strategy of choice for homeowners refinancing their mortgages.

Rather than using their properties as ATM machines to boost spending, homeowners increasingly are paying down the principal and shortening the maturities of their mortgages in a move Florida banker Rob Nunziata calls “forced savings.” Cash-in refinancings — in which borrowers invest more of their own money in the house — outnumbered cash-outs by more than two-to-one in the fourth quarter, according to Freddie Mac.

“We don’t see a lot of cash-out refis,” said Nunziata, who is co-chief executive officer of Orlando-based FBC Mortgage LLC, a retail mortgage banker mainly serving the southeastern U.S. “What we’re seeing a lot of people do is shorten the term” of their mortgages so they build equity quicker.

Darvin Boothe, a Tampa, Florida, businessman, is one of them. He refinanced into a 15-year loan last month from a 30-year, while reducing the interest rate on his $690,000 mortgage to 3.25 percent from 4.75 percent. The move “made a lot of sense” even though his monthly payments rose, he said.

“Having a house paid off by the time I’m 55 and the kids are out of school, I don’t think it gets any better than that,” said Boothe, 40, who runs a recruiting company and has two children, a 5-year-old and a 9-year-old.

The shift in attitudes has implications for the economy — and for the Federal Reserve. While homeowners who choose to put more money into their homes may be better off in the long run, it means they’ll have less money to spend in the short-run, holding back economic growth. To offset that, Fed Chairman Ben S. Bernanke and his central bank colleagues will have to continue flooding the economy with money until the U.S. finally achieves an expansion that’s worthy of its name.

Original post is Americans See Homes as Way to Save Not Spend by Political Capital.

Photograph by Ty Wright/Bloomberg

A “FOR SALE” sign is displayed in front of a homes in the Fox Glen subdivision of Pickerington, Ohio.

If you want to know where the housing market is headed, don’t ask prospective buyers. The ones that really have their fingers on the pulse are sellers, and they’re telling us the housing rebound is about to get a second wind.

That’s the conclusion of economists at Credit Suisse in New York who burrow deep into the minutiae of the Thomson Reuters/University of Michigan consumer sentiment figures. Among the questions asked by the group is whether it’s a good or bad time to put a house on the market.

Those answering in the affirmative outnumbered negative responses by a whopping 73 points in April, up a near-record 18 points from March, according to Credit Suisse economist Jonathan Basile. Changes in the University of Michigan’s sellers gauge, which came out today, have a near-perfect correlation with changes in demand, according to his research. Their models suggest sales of existing houses will climb to about a 5.6 million annualized rate in the next few months.

Such a jump would be eye-popping. After reaching a 4.96 million pace in November, purchases have seesawed within a narrow range, according to figures from the National Association of Realtors. If you exclude the surge in demand in late 2009 spurred by an approaching lapse of the government’s first-time homebuyer credit, November’s sales rate would have been the highest since July 2007.

One reason sales have recently leveled off is that there isn’t enough inventory to meet demand, the NAR has said. There were 1.93 million houses on the market at the end of March, the fewest for that month since March 2000. Those figures aren’t adjusted for seasonal variations, which means you should only compare the same month between years.

The lack of properties is also boosting prices, which would eventually undercut the recovery if it continued. The median price of an existing home climbed 11.8 percent in March from the same month in 2012, the biggest year-to-year gain since November 2005, according to NAR data.

The more upbeat sellers are about prospects, the more likely they’d put their properties on the market, Basile said.

“So besides faster sales, a rise in months’ supply from recent below-average levels, and an eventual moderation in home price gains should follow down the pike,” Basile wrote in a research note this month. “All would be healthy developments for the housing sector.”

The first confirmation may come Monday, April 29, with the NAR’s figures on pending home sales.

Original post is Housing Rebound: Sellers Know Best by Political Capital.

Photograph by David Paul Morris/Bloomberg

Construction crews work on new homes being built in San Ramon, California, on April 12, 2013.

The U.S. housing market looked even healthier today on growing demand for rental properties.

Data released by the Commerce Department showed builders broke ground on 1.04 million new homes in March at an annualized rate, the most since June 2008. All the gains in activity, however, occurred in multifamily construction last month.

Builders began work on dwellings suited for two or more families at a faster rate in March than the prior month, whereas they slowed production of single-family homes.

The report provides more evidence that the rental market is the main driver, with the construction of multifamily homes now proceeding at the fastest pace in more than seven years. Other figures only underscore this trend.

The vacancy rate on rentals averaged 8.7 percent last year, the lowest since 2001, according to Census Bureau figures. Homeownership has moved inversely, with the share of Americans’ owning their residence falling in 2012 to a 16-year low of just over 65 percent.

Other data today showed the cost of living in an apartment is outstripping total inflation. The Labor Department’s rent measure rose 2.8 percent over the past 12 months, while consumer prices climbed 1.5 percent.

Economists at Barclays PLC offer one explanation for the surge in rental demand, and it centers on the fallout from the housing crisis that started the recession in the first place.

Foreclosures are forcing more former owners to become renters, “which accounts for the relative strength of multifamily starts over single-family,” Barclay’s Michael Gapen wrote today in a note to clients.

Original post is Rentals on Fire — Construction, That Is: Driving Housing by Political Capital.

Since reaching a more than two-year low in October 2011, an index of 11 builder shares has surged almost 165 percent, dwarfing a 30 percent gain in the Standard & Poor’s 500 Index.

So what explains three straight months of declining builder optimism? It boils down to companies having trouble obtaining financing, concerns about available land and soaring costs for construction materials, a report today showed.

The National Association of Home Builders/Wells Fargo index of builder confidence dropped this month to the lowest level October. Smaller builders may be bearing the brunt of limited land availability, higher materials costs and financing difficulties.

“The home-builder confidence survey is primarily a polling of smaller private builders,” Stuart Miller, chief executive officer at Lennar Corp., the third-largest home-builder by revenue, said on a March 20 conference call. “Their lowering confidence reflects their limited access to capital and in turn a limited access to lands.”

A quick glance at costs of materials shows growing pains are starting to develop for the market. Prices for oriented strand board, or wood particle board, vaulted 67.8 percent in the 12 months ended in March. Lumber jumped 20.6 percent, gypsum (used in sheetrock) advanced 17.9 percent, and hardwood flooring rose 10.3 percent, according to the Labor Department’s report on producer prices.

Concrete, insulation, window and door frames, siding, shingles and paint are also more expensive.

The rout in commodity prices that began in the middle of last month may provide some relief for home-builders.

The challenge for builders is the ability to keep raising home prices and preserve margins while property appraisals are slow to adjust. Today’s confidence report showed a measure of sales expectations for the next six months improved to a six-year high, indicating builders are optimistic they can continue to raise prices.

Original post is Mortgage Rates Revive Real Estate — Home-Builders Seeking Capital by Political Capital.

If you ask Union Bank of Switzerland managing director Thomas Zimmerman, though, it’s too soon to celebrate a “full-fledged” housing rebound.

“It’s surprised me how strong this market is. It’s not going to recover, because the housing finance market is in total dysfunction,” Zimmerman said speaking on an American Enterprise Institute panel on housing and mortgages in Washington. “Without a mortgage market, you can’t have a strong housing market.”

Sales are up around the country as borrowing is affordable, Zimmerman said, and home values are increasing as inventories fall. Still, home sales are down from pre-recession levels and prices remain subdued, he said, and a troubled mortgage market will create a hurdle for a real pick-up.

Housing finance is problematic, Zimmerman said, as lending standards remain tight and no agreement has been reached on what to do with Fannie Mae and Freddie Mac.

“There’s a lot of toil and trouble ahead of us in this mortgage market, we’ve got a recovery going,” he said. “But I think it’s going to be a very robust one a couple of years from now.”

Purchases of newly built homes fell 4.6 percent to a 411,000 annualized pace in February, following a 431,000 rate in the prior month that was lower than previously estimated, the Commerce Department reported.

Though the numbers capped the best back-to-back months in more than four years, the most recent number was less than half of sales in February 2007, which took place at an 828,000 annualized pace.

“New home sales are really, really, really in a depressed state right now,” he said. “We’ve got a long, long way to go.”

Single-family home prices are improving yet remain well below their peak average, based on S&P/Case-Shiller data, which Zimmerman said also signals an incomplete recovery.

Original post is Housing Rebound: Not Quite Yet by Political Capital.

Photograph by Victor J. Blue/Bloomberg

Members of the media are reflected in the window of the One World Trade Center observation deck as the Manhattan skyline stands in New York on April 2, 2013.

While recent economic indicators, including a disappointing payrolls report last week, have spoiled the party of early-year gains, the nascent housing recovery may once again offer a reason for optimism elsewhere in the expansion.

Retail office space and other commercial real estate, including apartments and industrial buildings, are poised to track the residential property growth that’s finally cracking pre-recession levels, according to a research note today released by James Marple, senior economist at TD Economics, an affiliate of the Toronto-based TD Bank.

The retail office sector, first disrupted by the Amazon.coms and eBays and further slammed by a drop in consumer spending during the economic downturn, is set to regain its footing after being overbuilt prior to the recession, according to the report.

“While online competition will continue to be a headwind for the retail sector, the outlook is still positive, given its close correlation to housing,” Marple said in the report. “Growth in retail investment tends to follow residential investment with a lag of about a year, and housing is expected to grow by over 15 percent over the next two years.”

Retail office space may especially be helped by demand in suburbia, where residential growth hasn’t yet reached the levels of higher-density areas whose multi-family properties are rebounding. As more customers move to the single-family areas, the brick-and-mortar retail should follow.

A pickup in residential construction probably will lead to a bigger addition to U.S. growth this year than in 2012, when it contributed for the first time in seven years. Sales of new homes in February capped the best two back-to-back months in more than four years, Commerce Department data show. Builders began work on more houses in Februarym and permits for future construction climbed to an annual pace of 917,000, the highest level in almost five years.

“As the housing recovery gains steam and economic and job growth accelerates, vacancy rates will show more meaning­ful improvement, giving support to prices and investment,” Marple wrote. “This should become more apparent in 2014, as employ­ment momentum and vacancy rates move closer to historic levels.”

Original post is Real Estate: Silver Lining of Cloudy Economy by Political Capital.

Photograph by Daniel Acker/Bloomberg

Potential buyers view a new home under construction in South Barrington, Illinois.

Congress may be on the verge of accidentally helping the economy.

Washington lawmakers haven’t been able to compromise on ways to avert broad-based federal spending cuts, whether and how to implement unprecedented health-care changes or how to help rescue the ailing 238-year-old Postal Service. Yet the promise of bipartisan negotiations to overhaul the U.S. immigration system may spur the sort of acceleration in the housing market that would push the economic recovery into a higher gear.

The number of foreign-born homeowners will increase by 2.8 million in the decade ending 2020, compared with a 2.4 million gain in the previous 10 years, according to a Mortgage Bankers Association study that didn’t assess the potential impact of any new legislation.

Research by a group of Hispanic real-estate agents estimates that putting undocumented workers on a path to citizenship, which is the centerpiece of immigration legislation under debate in Congress, may generate about 3 million more home-buyers over the next several years.

“We’ve probably under-appreciated this powerful force that is already resident here and is so upwardly mobile that it pushes up the housing market from the bottom,” said Dowell Myers, author of the MBA study and a public policy professor at the University of Southern California who studies housing demography.

Immigrants, who hold more positive views toward owning a home than native-born Americans, are increasingly likely to buy a house the longer they live in the U.S. and the more prosperous they become, the research shows. Their upward mobility is evident in the MBA data showing the share of those arriving in the 1980s who became homeowners rose by about 35 percentage points over the next three decades even as the longest recession since the Great Depression took a toll.

Fifty-six percent of Hispanic Americans, who according to Census data make up more than half of foreign-born residents in the U.S., said a “major” reason to buy a house is that it’s a “symbol of success or achievement,” a 2011 survey data from Washington-based Fannie Mae showed. The share for all Americans giving the same response was 32 percent.

Two obstacles to the nascent housing recovery could spoil the party. Still-strict lending standards five years after the sub-prime mortgage crisis triggered the last recession are a particular hurdle for foreign-born first-time home-buyers. And the supply of homes for sale is especially dry in a handful of states with high immigrant populations, including California and Nevada.

Even so, for immigrants, “the first dream is to own the place you live in,” said Maria Fiorini Ramirez, founder and chief executive officer of her eponymous economic and financial consulting firm and a native of San Giuseppe Vesuviano, Italy. And amid the obstacles, she said,“home ownership in the U.S. is probably the easiest in the world,” particularly compared to Italy, where “lots of red tape” can hold up a home purchase for years.

Original post is Housing Boost: ‘Born Outside the USA’ by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Contractors lay down flooring at a construction site in Lorton, Virginia.

Timing is everything.

Before Election Day, it was reported that the nation’s unemployment fell below 8 percent for the first time in nearly four years.

After Inauguration Day, it’s reported that  the economy contracted, with the nation’s gross domestic product dropping at an annual rate of 0.1 percent in the fourth quarter of 2012, its worst performance since the second quarter of 2009, when the world’s largest economy was still in recession. And a remarkable swing from the third-quarter growth of 3.1 percent.

President Barack Obama rode to re-election in November with a sizable Electoral College majority in an election that was said to be inextricably linked to the health of economy. It turns out the economy was in a stall during that fourth quarter of 2012.

Behind these numbers, there were gains. Consumer spending grew during the quarter. Home sales are rebounding.

“Consumer confidence has been rising, and consumer spending has been rising, but there’s more work to do,” White House press secretary Jay Carney said in his press briefing today, “and our economy is facing a major headwind.”

“I don’t think any time you see a reduction in economic growth that it’s good news, but I think we need to understand what lies underneath it, the sharp drop in particular in defense spending, which is consistent with what we know has been going on in preparation for the possibility of sequester” of Defense Department and other discretionary spending,’ Carney said. “That was the case towards the end of the year when sequester was supposed to kick in on Jan. 1.”

“The broader point, I think, is that — and I think there’s been some reporting to reflect this — that there are — there remain even within this report indications whether it’s housing or consumer spending or business investment that we continue to be poised for positive economic growth and job creation,” he said. “And we need to make sure that in Washington we are not taking actions that undercut that progress that we have been making and can continue to make and will continue to make.”

Democratic activist Brad Woodhouse noted that one economist put the bad news-good news mix this way:

Paul Ashworth at Capital Economics called it “The best-looking contraction in U.S. GDP you’ll ever see.” wapo.st/VnIaCt

— Brad Woodhouse (@woodhouseb) January 30, 2013

The re-elected president’s popularity is up again, at its highest level since his first year in office.

Timing still is everything.

And this president’s party has a lot of time — four more years — to deliver a GDP that looks good on Election Day 2016.

Original post is Obama’s Economy: Timing Everything by Political Capital.

Photograph by Mark Elias/Bloomberg

The prices of the most expensive homes in Miami are increasing at a faster pace than the rest of the market there.

Trying to buy a piece of the pie in Miami or Seattle is becoming more expensive at a faster pace than the rest of the market.

The prices of the most expensive homes in Seattle and Miami are increasing at a faster pace than the rest of the market there, according the S&P/Case-Shiller index of property values in 20 cities. The data is broken down into thirds. The highest-priced third in those two cities increased more than both of the lower-cost thirds — the only two areas of the country where that is true, according to the data.

Home prices in the “high tier” market, which start at $268,363 in Miami, grew 8.4 percent from a year earlier, compared with a 6.9 percent rise for low-tier homes. One reason is that wealthy people from other markets are looking for sunny weather and are snatching up luxury vacation homes in the Miami area.

Still, homes in the highest tier in Miami are still 40.4 percent below the peak level for luxury homes, reached in May 2006. They have rebounded 9.0 percent since a post-recession low reached 11 months ago in Nov. 2011.

In Seattle, luxury home prices increased 6.2 percent, compared with a rise of 2.2 percent for homes in the least expensive third of the market.

A “high tier” home in Seattle starts at $404,428. The peak level for luxury homes in Seattle was July 2007, and “high tier” home prices are still 22.5% below the peak. Luxury home prices bottomed a year ago and have since risen 6.2 percent.

Original post is Movin’ On Up in Seattle, Miami by Political Capital.

Photograph by Eddie Seal/Bloomberg

Construction continues at TPCO America Corp.'s pipe finishing mill facility in Gregory, Texas.

Newspaper editors can retire the old “Hard Times for Hard Hats” headline.

U.S. construction employment is poised to bounce back after being flat for almost three years. Builders have the most openings and are breaking ground for more homes than at any time in four years. Architects, those walking leading economic indicators, are billing the most since December 2010.

Construction workers, who now make up the smallest slice of the labor force in six decades, should be in demand next year as work starts on all those new projects. And economists say building boosts hiring in related industries like manufacturing and transportation, giving a boost to the broader economy.

Another reason for optimism arrived this morning: Homebuilder confidence jumped to a six-year high.

See the full story.

Original post is Builders Hang Help-Wanted Signs as Construction Rebounds by Political Capital.