With the economy still undergoing a very slow recovery, it is hard not to question why the stock market seems to be doing so well. The bull market for stocks is about to turn five years old with a gain of approximately 150% in the Dow over that time. Those are pretty impressive numbers, however when you look at the numbers more carefully, it depends upon the perspective. Measure from the peak in October of 2007 before the financial crisis hit and one will see that the Dow increased less than 20% total over the past 6.5 years. Measure from 1995 and the Dow increased over 300% in the past 19 years, showing that the long-term numbers are indeed pretty impressive.
The real question is–why has the stock market fully recovered from the financial crisis while other areas of the economy still lag? Real estate is on the way back but has a ways to go to reach its peak just before the crisis. Many companies are still struggling and paring staff while employment has not recovered. Certainly the Federal Reserve Board has helped with record low rates. Companies have been reticent to hire in uncertain economic times, keeping staffing levels low while building up cash reserves and boasting profits. Some of this cash is making its way into the real estate sector as investors have purchased a record number of homes for cash.
Is the stock market’s rally telling us that better economic times are ahead? This is certainly a possibility. However, we also know that better economic times may cause the Fed to eventually raise rates and it will be interesting to see if that move would take the wind out the market’s sails. A better economy actually slowing stocks down sounds perverse but it could happen. In the meantime, we enjoy the ride and the historical perspective reminds us that trying to time the market is an exercise in futility. This statement holds for real estate as well. If you bought a home in 1990 and stuck with a 30-year fixed home loan, you would have impressive gains regardless of what has happened since 2007.
The Markets. Last week, rates bounced back in the aftermath of the release of the employment report. Freddie Mac announced that for the week ending March 13, 30-year fixed rates increased to 4.37% from 4.28% the week before. The average for 15-year loans rose to 3.38%. Adjustable rates were mixed last week with the average for one-year adjustables falling to 2.48% and five-year adjustables rising to 3.09%. A year ago 30-year fixed rates were at 3.63%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac –“Rates on home loans edged up amid a week of light economic reports. Of the few releases, the economy added 175,000 jobs in February, which was above the market consensus forecast and followed an upward revision of 25,000 jobs for the prior two months. Meanwhile, the unemployment rate nudged up to 6.7 percent, the first rate increase in over a year.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Buying costs less than renting in all 100 large U.S. metros, according to the Rent vs. Buy Report from Trulia. Rising rates and home prices have narrowed the gap between renting and buying — yet historically low rates have kept homeownership from becoming more expensive than renting. Trulia says that at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally, versus being 44% cheaper at the start of 2013. The range of difference, as one expects, varies from market to market. Trulia’s interactive Rent vs. Buy Map shows how the math changes under alternative assumptions for the rate, the income tax bracket for tax deductions, and the number of years that one stays in the home. To compare the costs of owning and renting, Trulia’s model assumes buyers get a 4.5% rate on a 30-year FRM with 20% down payment. Further, it assumes buyers itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for seven years. Under these assumptions, buying is 38% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. Source: Housing Wire To access Trulia’s Rent vs. Buy Map Click Here
Single-family new-home sales surged in January to a five-and-a-half-year high, giving the industry new hope that the new-home sector isn’t heading for a slowdown this spring after all. New-home sales rose 9.6 percent to a seasonally adjusted annual rate of 468,000 units in January, the highest level since July 2008, the Commerce Department reported. “The fact that the cold weather that hit much of the country didn’t stop home buyers from going out and purchasing a piece of the American dream is a great sign,” says Kevin Kelly, chairman of the National Association of Home Builders. “However, the very low supply of new homes on the market and the continued concern of available buildable lots still have builders cautious about getting ahead of themselves.” The inventory of new homes for sale held mostly steady in January, remaining at a tight 4.7-month supply at the current sales pace. Last month, housing starts had posted their largest decline in nearly three years, sparking concern that the new-home sector was headed for a downward spiral with rising rates and home prices. But in January, new-home sales increased 2.2 percent from a year ago, and the median price of a new home rose 3.4 percent to $260,100 compared to year-ago levels. Source: Reuters
City planners across the country are looking to revitalize suburban areas by making them more walkable. Neighborhoods that boast greater walkability tend to have higher resale values in both residential and commercial properties, finds a recent study published in Real Estate Economics. In fact, a 2009 report by CEOs for Cities found that just a one-point increase in a city’s walk score could potentially increase homes’ values by $700 to $3,000. “There’s a strong preference for being in a neighborhood where people can walk to shops, restaurants, parks,” says Joe Molinaro, NAR’s managing director of community and public affairs. In NAR’s 2011 Consumer Preference Survey, two-thirds of those surveyed cited walkability as an important factor in choosing where to live. What’s more, the study found that consumers were willing to sacrifice other items on their wish-lists in order to be located in a walkable neighborhood. These high-density spaces that blend commercial workspaces, retail housing, and parks mostly have been in high demand in places like Boston, Chicago, New York, and San Francisco. But now other cities want to follow suit. For example, officials in Woodstock, Ga., a small town about 30 miles outside of Atlanta, decided to counter its suburban sprawl by redesigning its city center to include more than 30 acres of the surrounding land, 300 housing units, 80,000 square feet of commercial space, and open parks. The move helped make the city more walkable. The change has helped to contribute to a 17 percent growth in the town’s downtown property values over the past five years. “Walkability plays a big part in an area’s economic vibrancy,” says Scott Bricker, executive director of America Walks, a national nonprofit that promotes walkable communities. “The most valuable real estate around the world is in walkable places, places where people are living and working in closer proximity.” Sources: NAR and CNBC