The more than 100 major real estate brokers who attended RISMedia’s Mid-Year Power Broker Forum earlier this month virtually all reported first quarter gains in transactions and dollar volume from 2012. Consumer confidence combined with near historic low mortgage interest rates is fueling the residential real estate industry’s resurgence, and industry leaders are reporting that many leading REALTORS® from around the country are experiencing a tremendous uptick in consumer interest and transactions that they haven’t seen in more than five years.
“Home values and consumer confidence are directly related,” said Lawrence Young, NAR chief economist. “Since the majority of families in America are homeowners, a rise in home value certainly lifts their confidence, which in turn helps the economy as people feel more comfortable spending money. It’s all good news in housing, and I think the momentum will continue.”
This week the Conference Board announced that its index of consumer attitudes jumped to 76.2 from an upwardly revised 69 in April, topping economists’ expectations for 71. The gain was the highest level of consumer confidence in five years.
Leading brokers in some of the country’s real estate hot spots provided insight Wednesday into their rising market conditions.
“In Florida, we have been experiencing very tight inventory and in some markets less than three months’ supply,” said Rei L. Mesa, president and CEO of Prudential Florida Realty. “The lack of inventory and positive consumer confidence is driving multiple offers on the available resale inventory. The residential rental markets are at near record low vacancies with rental rates increasing. Approximately 30 – 40 percent are all cash deals.
Across the country in California’s Bay Area, Ed Krafchow, chairman of the board for Better Homes and Gardens Real Estate Mason-McDuffie, tells a similar story.
“The San Francisco City market is on fire,” said Krafchow. “We have multiple offers everywhere, from the lowest to the highest end of the business, and agents are simply in the trenches working really hard to get listings because there is so much activity.”
In a May 10 interview on Fox Business News with Lou Dobbs, Richard Smith, Chairman and CEO of Realogy Holdings Corp., commented on the inventory issue: “We weren’t bullish in the first and second quarters last year but we were in the third and fourth quarters principally because we saw sustainable price increases. So demand is simply outstripping supply right now and price is reacting to that.”
He continued, “Inventory is up about 9 percent since January so it’s doing what it should be doing. Builders are building so that’s adding new inventory. Underwater equity homes now are suddenly no longer underwater in their equity – or at least a high percentage of them. They’re coming back into the market as new inventory and just the seasonal swing of business is coming back into the market as inventory. So inventory will correct. There’s more than enough demand to meet that inventory need and price is reacting to that.”
Case-Shiller Reports Double Digit Increases This Week
Further supporting brokers’ remarks, this week, Case-Shiller reported double digit price increases in all three of its composites, which posted their highest returns in seven years.
According to their report, prices increased in the 10-City and 20-City Composites by 10.3 percent and 10.9 percent in the year to March with the national composite rising by 10.2 percent. All 20 cities posted positive year-over-year growth.
“Home prices continued to climb,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth. The National Index and the 10- and 20-City Composites posted their highest annual returns since 2006.
“Phoenix again had the largest annual increase at 22.5 percent followed by San Francisco with 22.2 percent and Las Vegas with 20.6 percent. Miami and Tampa, the eastern end of the Sunbelt, were softer with annual gains of 10.7 percent and 11.8 percent.
The number of cities that showed monthly gains increased to 15. Denver, Charlotte, Seattle and Washington entered positive territory; Seattle and Charlotte were the most notable with returns of +3.0 percent and +2.4 percent. San Francisco posted the highest month-over-month return of 3.9 percent.
All 20 cities showed increases on an annual basis for at least three consecutive months. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Seattle and Tampa all posted double-digit annual returns. Las Vegas, Phoenix and San Francisco were the three MSAs to increase over 20 percent in March 2013 over March 2012.
In recent weeks the chorus of concern about the recovery and the possibility that it was creating a bubble has grown, especially as prices zoomed in Northern California markets like Sacramento and Stockton.
Do we have a bubble building here? Realogy’s Chairman Smith assured, “We’re back to about 40-50 percent of pricing pre-2005 so it’s unlikely that we’re anywhere near a bubble. But look at it in this context,” he said. “The lending and underwriting standards in ’05 were abysmal. That’s why we have this problem today. Lending and underwriting standards today are extremely tight. So the likelihood of a whole class of people defaulting on loans going forward clearly isn’t going to happen. Look at Fannie (Mae) and Freddy’s (Mac) profits thus far. They’re underwriting is pristine. They’re credit risk is pristine. So the likelihood of that bubble being created because of underwriting is very unlikely.”
Watch RISMedia this week for further reporting on the housing uptick.
Associate Editor Zoe Eisenberg and Online Managing Editor Beth McGuire contributed to this report.
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