Is housing headed for a dreaded double-dip? Or are signs finally pointing to a long-awaited rally?

Despite the glum statistics recently, well-heeled buyers in many markets should feel comfortable betting on the latter.

Home prices nationwide in December were down more than 31% from their 2006 peak, according to the latest Standard & Poor’s/Case-Shiller index, including a 4.1% fall in 2010. And some economists see more weakness ahead, based on the so-called shadow inventory of foreclosures that haven’t yet been put up for sale.

But the national housing market is merely a collection of local markets. And while those markets have moved together to an unusual degree during the past 15 years or so, new data show that the pattern is changing—and that many markets are safer now than they have been in years.

Before the recent housing boom, local and national prices in the 14 biggest markets had a slight negative correlation, meaning some markets tended to zig as others zagged, says Robert Shiller, an economist at Yale University and co-creator of the Case-Shiller index. From 1997 to 2006, however, “correlations became very close for nearly all [14] cities,” he says, as a rising tide lifted most boats.

Correlations are still quite high by pre-1997 standards, but they are weakening. In the first quarter of 2009, for example, median prices for existing-home sales declined from the previous year in 134 of 152 metropolitan statistical areas, according to the National Association of Realtors. By contrast, in the fourth quarter of 2010, median prices rose in 78 markets, fell in 71, and were unchanged in three.

David Blitzer, chairman of the index committee at S&P Indices, says the breakdown in correlations “is a positive sign we are moving out of the boom-bust cycle.”

Even within metro areas, there are growing divides. In some markets, such as upscale Greenwich, Conn., sales and prices are picking up closer to the downtown area even as more moderately priced homes in adjoining neighborhoods languish on the market, says Jeffrey Jackson, chairman of Mitchell, Maxwell & Jackson Inc., an appraisal company in New York. In other regions, such as the Midwest, the situation is reversed, with starter homes and “distressed sales” such as foreclosures in demand but trade-ups and retirement townhouse sales stalling.

“There is no consistency,” says Lawrence Yun, chief economist of the National Association of Realtors. “In one quarter, a market may see a price increase and the next quarter a price decrease.”

There’s good reason to be skeptical of the national statistics. The NAR’s quarterly price data are based on median sale prices and can be skewed by sales of higher- or lower-priced homes when there are few transactions, experts say. The Case-Shiller index is based on repeat sales of specific homes, which some argue is a more accurate measure—but it is limited to only the 20 biggest markets.

Local Market Monitor Inc., a real-estate research company based in Cary, N.C., that ranks local housing markets for banks, investors and builders, combines the best of both. It takes repeat-sales prices compiled by the Federal Housing Finance Agency across 315 housing markets and compares them with the “equilibrium prices” that can be sustained by local economic conditions. Then it ranks markets accordingly.

LMM’s latest data, released Thursday, suggest the worst of the housing bust is over in most areas. The firm rated just 21 markets as “frankly dangerous” in February, down from 31 in August. It ranked 20 markets as speculative, 259 markets as posing “typical” risks and 15 as suitable for conservative investors, from 37, 222 and 25, respectively, in August.

“For the vast majority, we are seeing a much more normal situation,” says Carolyn Beggs, chief operating officer at LMM. “Home buyers shouldn’t have the fear they would have had three years ago.”

Despite the broadly positive signs, however, buyers still need to exercise caution, for there are vast differences across various metro areas—and sometimes from one part of town to another.

Is the Worst Over?

In the Northeast, prices in financial centers such as New York and Boston are benefiting from the Wall Street rebound, and in many neighborhoods prices are either bottoming or gaining modestly, according to LMM. Washington is seeing a slow recovery in home prices thanks to relatively stable government employment.

The metro Philadelphia area saw prices decline just 0.5% the fourth quarter of 2010 over the previous year, far better than the national average. Optimism is spreading: Building permits for single-family homes rose 8% in 2010, far better than the 3% rise nationwide. But the dividing line is stark: In nearby Allentown, Pa., which has suffered high foreclosure rates during the bust, permits plunged 22% in 2010.

“Philadelphia is an established East Coast city that didn’t have a lot of overbuilding during the boom, so its bust was less painful than somewhere like Allentown, which was one of the growing areas in Pennsylvania,” says Robert Denk, senior economist at the National Association of Home Builders.

In the Southeast, the pain is much more widespread. Florida cities such as Orlando, Jacksonville and Daytona still are struggling from foreclosures, high inventories, unemployment and a weak second-home market. In Orlando, ranked by LMM as a “frankly dangerous” market, prices declined 8.1% in 2010. Jacksonville declined 7.3%, while Daytona was down 5.6%.

California, meanwhile, is a hodgepodge. In some cities, prices are recovering faster than in many other parts of the U.S., largely because of population growth. In San Diego, prices increased by 0.1% in 2010; in Los Angeles, prices were flat. The San Jose-Sunnyvale-Santa Clara area, near Silicon Valley, saw a 2.2% rise.

Dianne Hartnett, a Re/Max real-estate agent in downtown San Diego, says sales have been “surprisingly” brisk for condominiums, which typically start at about $575,000. “There hasn’t been a lot of new construction and there won’t be for a while, and that is healthy for the downtown market,” she says.

The situation is quite different in Central California, a hotbed of foreclosures. LMM ranks Fresno, for instance, as “frankly dangerous,” with prices having fallen 5.5% in 2010. Rental vacancy rates there surged from 3.8% in the first quarter to 11% in the fourth, according to the U.S. Census Bureau, thanks to a spike in foreclosed homes now available for rental. In Los Angeles, by contrast, vacancy rates fell to 6.2% in the fourth quarter from 8.4% in the first quarter.

Las Vegas, Reno and Phoenix continue to cast a pall over much of the Southwest. All three remain on LMM’s “frankly dangerous” list, with prices having fallen by 5.9% in Las Vegas, 10.3% in Reno and 8.9% in Phoenix.

Yet some Texas cities, such as Austin, Dallas and San Antonio, are much healthier. The region largely escaped the boom and bust—and employment has held up better thanks to the thriving oil industry. In San Antonio, for example, prices rose 0.7% in 2010.

The Midwest remains sluggish, with its biggest market, Chicago, down 0.3% in 2010. Paul Wells, a Re/Max broker in nearby Barrington, Ill., says prices and sales overall in Chicagoland appear to be stabilizing but are better for low-cost housing than for more expensive homes.

“More people are looking in the upper price ranges than last year at this time,” Mr. Wells says, “but sales above $1 million last year were still about 10% below what they were in 2009.” By contrast, sales of homes priced under $1 million increased 10%.

The Wild Card

There is, of course, one wild card that could affect most markets: rising interest rates. A big surge could pose a risk by making homes less affordable. Rates for a 30-year fixed-rate conforming mortgage spiked to 5.13% on Feb. 14 from 5.04% a week earlier, according to the Mortgage Bankers Association.

The best-case scenario might be that rates rise in 2011, but very slowly. That “should encourage people to act soon, before rates get any higher,” says Guy D. Cecala, CEO and publisher of Inside Mortgage Finance Publications Inc., a Bethesda, Md.-based provider of residential mortgage data. In San Francisco, for example, “Rates were going up [in 2010], but it was good because it pushed people to buy,” says Alan Mark, founder of The Mark Co., a residential real-estate consultant there.

Confusing though the various statistics may be, they do point to one overarching conclusion: Now is a good time for upper-income buyers in most markets to start looking.

Consider Gail Rybski, a human-resources executive at a pharmaceutical company, and her husband, Robert, a remodeler. The couple recently sold their home in Mendham, N.J., and bought a much larger one on two more acres across town—a “Norman Rockwell-esque” neighborhood, Mrs. Rybski says.

The couple got a 4.9% 30-year fixed-rate loan for the new house, for which they paid $1.025 million. The monthly nut is just $800 higher, an amount they can easily afford.

Mrs. Rybski says she did much research before taking the plunge. When she added up all of the pros and cons, she says, “We thought this investment was a risk worth taking.”

Source: wsj.com

The uptrend in existing-home sales continues, with January sales rising for the third consecutive month with a pace that is now above year-ago levels, according to the National Association of REALTORS®.

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.

Lawrence Yun, NAR chief economist, said the improvement is good but could be better. “The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey² shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place.

Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010; the balance of sales were to repeat buyers. All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

All-cash purchases are at the highest level since NAR started measuring these purchases monthly in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

The national median existing-home price³ for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December; it was 38 percent in January 2010.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said the median price is being dampened by unusual market factors. “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward,” Phipps said. “Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply⁴ at the current sales pace, down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009 when there was a 7.3-month supply.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.76 percent in January from 4.71 percent in December; the rate was 5.03 percent in January 2010.

Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.69 million in January from 4.58 million in December, and are 4.9 percent higher than the 4.47 million level in January 2010. The median existing single-family home price was $159,400 in January, down 2.7 percent from a year ago.

Existing condominium and co-op sales increased 4.7 percent to a seasonally adjusted annual rate of 670,000 in January from 640,000 in December, and are 7.9 percent above the 621,000-unit pace one year ago. The median existing condo price⁵ was $154,900 in January, which is 10.2 percent below January 2010.

Regionally, existing-home sales in the Northeast fell 4.6 percent to an annual pace of 830,000 in January from a spike in December and are 1.2 percent below January 2010. The median price in the Northeast was $236,500, which is 4.0 percent below a year ago.

Existing-home sales in the Midwest rose 1.8 percent in January to a level of 1.14 million and are 3.6 percent above a year ago. The median price in the Midwest was $126,300, which is 3.2 percent below January 2010.

In the South, existing-home sales increased 3.6 percent to an annual pace of 2.02 million in January and are 8.0 percent higher than January 2010. The median price in the South was $136,600, down 2.1 percent from a year ago.

Existing-home sales in the West rose 7.9 percent to an annual level of 1.37 million in January and are 7.0 percent above January 2010. The median price in the West was $193,200, down 5.7 percent from a year ago.

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Source: realtor.org

Builders in the U.S. began work on more homes in November for the first time in three months, showing the industry is struggling to recover.

Housing starts rose to a 555,000 annual rate, up 3.9 percent from October’s 534,000 pace that was higher than initially estimated, Commerce Department figures showed today in Washington. The median estimate in a Bloomberg News survey called for a 550,000 pace. Building permits, a proxy of future work, fell, reflecting a drop in applications for multifamily projects.

Companies like Toll Brothers Inc. anticipate the industry that triggered the worst recession since the 1930s will regain its footing in coming months after the end of a tax credit caused demand to slump. While low borrowing costs and prices may help entice buyers, mounting foreclosures and unemployment near 10 percent mean housing will take years to fully rebound.

“The housing recovery is fragile at this point,” Michelle Meyer, a senior U.S. economist at Bank of America Merrill Lynch Global Research in New York, said before the report. “Demand remains very weak for new houses. Builders are competing with distressed properties so construction remains depressed.”

The median forecast was based on a survey of 76 economists. Estimates ranged from 520,000 to 595,000.

Permits dropped 4 percent to a 530,000 annual rate, the lowest level since April 2009. They were projected to climb to a 560,000 annual rate, according to the survey median.

Current-Account Gap

Another Commerce Department report today showed the current- account deficit widened to $127.2 billion in the third quarter, reflecting an increase in imports. The gap, the broadest measure of international trade because it includes income payments and government transfers, was the biggest in almost two years.

From the same month last year, housing starts fell 5.8 percent, while permits were 15 percent lower.

Construction of single-family houses increased 6.9 percent to a 465,000 rate, the highest level since April. While permits also rose, by 3 percent, the 416,000 level of applications in November signals work may slow in coming months.

Work on multi-family homes, such as townhouses and apartment builders, dropped 9.1 percent to an annual rate of 90,000, a third consecutive decline and the lowest level since June. Multifamily permits plunged 23 percent to a 114,000 pace.

Three of four regions showed an increase, led by a 16 percent increase in the Midwest.

Americans have pulled back on house purchases following the expiration of a tax incentive of as much as $8,000, which required that contracts be signed by April 30 and closed by Sept. 30. Sales of new and existing properties fell in October. Figures for November are due next week.

Fed’s Concerns

Today’s report is a reminder why Federal Reserve policy makers, who met Dec. 14 for the final time this year, say housing is lagging while the economy rebounds. They cited declines in home values as one of the constraints on consumer spending.

“The housing sector continues to be depressed,” Fed officials said in a statement after the gathering, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Home values are poised to drop by more than $1.7 trillion in 2010, according to Zillow Inc., a closely held provider of home price data. This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, Seattle-based Zillow said on Dec. 9.

The National Association of Home Builders/Wells Fargo’s confidence index was unchanged in December from a month earlier, a report showed yesterday, indicating developers remained pessimistic.

Builder Outlook

Even so, the housing market will avoid a double-dip after reaching a bottom last year, and the industry will gain momentum in 2012, according to Douglas Yearley, chief executive officer of Toll Brothers, the largest U.S. luxury-home builder.

“The recovery is here to stay,” Yearley said in a Dec. 7 interview in New York. “I think 2011 will be an improving year, but I think 2012 will be a big year for us.”

While the number of visitors to its sales offices isn’t up, Horsham, Pennsylvania-based Toll is seeing more “quality” visitors, a sign buyers are less skittish about the market and more serious about purchasing, he said.

Source bloomberg.com

Home prices gained 5.7% over the three months ending in August, according to real estate data provider Clear Capital. But analysts added price growth has slowed and will contract well into 2011.

The price gain through August is down 240 basis points from the July report, which dropped 70 bps from June. Alex Villacorta, senior statistician at Clear Capital, said prices built up a 13% cushion from its trough in 2009.

“Overall, prices look poised to continue their deceleration with a likely drop into negative territory by the end of the year,” Villacorta said.

With the drastic drop in home sales shown in July, prices will continue to soften and drop below 2009 levels next year.

Drilling down to the metropolitan statistical areas (MSAs), many of the 15 highest performing markets showed double-digit quarterly gains through August. Home prices in San Diego increased 11.2% above levels seen a year ago, but most of the improved areas were in the Midwest and South regions.

Conversely, 11 of the previously top-performing markets showed accelerating declines. New Orleans, Cleveland and Columbus had prices fall by more than 7%.

“The interesting part about all of these markets is that for the first time, the local markets are left to their own devices,” Villacorta said.

During the housing bubble, all the markets trended up with the widespread availability of credit, and when the market made its downturn in 2008, REO properties had flooded the market, dragging down prices fairly evenly, Villacorta said.

But as the national market tries to recover, the gaps between the different micro-markets will begin to widen.

“Now that we’re getting close to that point again, it’ll really start to separate which markets are healthy enough to have a sustained recovery and which ones still have a way to go,” Villacorta said. “When you’re talking national, when you look at one number that’s supposed to characterize the whole country, it’s akin to putting out one weather forecast for the entire country.”

Housingwire.com

WASHINGTON (Reuters) – Pending sales of previously owned U.S. homes rose unexpectedly in July, an industry group said on Thursday, suggesting a tax credit-related housing market decline was close to bottoming.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, increased 5.2 percent to 79.4 from June. June contracts were revised to show a slightly bigger 2.8 percent decline instead of the previously reported 2.6 percent fall.

Compared to the July last year, pending home sales fell 19.1 percent. Economists polled by Reuters forecast the index, which leads existing home sales by a month or two, falling 1.0 percent in July.

Home sales and building activity have dropped sharply following the end in April of a popular tax credit for home buyers.

“Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” said Lawrence Yun, NAR chief economist.

news.yahoo.com