Home Prices and the Shift?

That sounds familiar. Been saying that for a year and a half! In many forms of investing once everyone is saying "here is the new trend" it is already to late to take advantage. Not true in real estate!! We are lucky to be in this business. We just have to adjust our offer and exit strategies to work with the current market!

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Michael, how would you adjust your strategy if you were in the hot market of say San Diego where I am? Thanks in advance for your response.

I replied to your pm. Tammy

Clichés form very quickly in markets, and the nascent housing recovery has every sign of being the next one. Data over the last few months has pointed to an improvement in economic indicators, particularly in the housing market, and Tuesday’s Case-Shiller index put the latest brick in the wall. While home prices seemed to have bottomed out, investors should be wary of the next housing bubble, with homebuilders seeing “uncomfortably high” valuations, according to Barclays, as markets ignore a still large shadow inventory and a shortage of high-quality homes.

The Case-Shiller indexes for July confirm that housing is rebounding. For a third consecutive month, all 20 cities and both composites were up in a monthly basis (the 10-city gained 1.5% and the 20-city was up 1.6%). On an annual basis, the 10- and 20-city composites gained 0.6% and 1.2% respectively, with only three cities (Cleveland, Detroit, and New York) seeing rates decelerating.
What Housing Recovery? Distressed Sales Still High, Shadow Inventory Massive Agustino Fontevecchia Agustino Fontevecchia Forbes Staff
Housing Recovery On Firm Foundation: Lennar And KB Home Build Surprise Profits Abram Brown Abram Brown Forbes Staff
Why The U.S. Housing Recovery May Be Due For A Stumble Steve Schaefer Steve Schaefer Forbes Staff
Double-Dip Recession 20% To 25% Likely If Fiscal Cliff Hits, S&P Warns Agustino Fontevecchia Agustino Fontevecchia Forbes Staff

These gains are due to a “mix shift,” according to High Frequency Economics’ chief economist, Jim O’Sullivan. The rate of distressed sales (of foreclosed properties or short-sales) is declining, which in turn means the number of cheaper homes being sold off, as a proportion of the total number of sales, is falling, giving a boost to average prices.

Both composites remain about 30% off from their June/July 2006 peaks, as prices have returned to mid-2003 levels. While the number underwater mortgages has been declining, it is still fairly large, at 22.3% of all residential properties with mortgages, or 10.8 million units as of the end of the second quarter, according to CoreLogic. The latest data on the shadow inventory, which dates to April 2012, put it at 1.5 million units, or four months’ supply, which in turn puts pressure on major banks like Wells Fargo, Bank of America, and JPMorgan Chase, for example.

But the rebound is clearly here. Both composites are about 7.5% to 8% up from their recent early-2012 lows. Flow of funds data picked up by Nomura shows household wealth from real estate increased by roughly $350 billion in the second quarter, and prices suggest this increase likely continued into the third quarter.

This data has been backed not only by housing starts and the sales of existing units, which recently hit two-year highs as I’ve previously reported, but also in the equity markets. As my colleague Abram Brown explained, surprise profits from Lennar and KB Home “suggest the housing market is firming.” Indeed, the SPDR Homebuilders ETF is trading near its 52-week high, as most of the homebuilders including Toll Brother, DR Horton, Pulte Group and the aforementioned Lennar and KB Home.

Beware the homebuilders’ valuations, the soothsayer may be telling investors. In this case, Barclays’ equity research is sounding the alarm bell. The analysts explain that a shortage of quality housing supply “is likely to drive a dramatic, multi-year recovery in home prices” that could drive prices up 5% to 7% per year through 2015. Nominal home prices, they note could push nominal prices in 2015 to exceed levels reached during the housing bubble.

This is a favorable trend for the homebuilders, given the “absence of large-cap ways to invest” in the housing recovery. Thus, it seems like equity traders have priced in the “best case” scenario through the homebuilders, making it “difficult to justify much higher valuations for the strongest homebuilders.” They are therefore cutting their rating from buy to hold on DR Horton, Lennar, and Toll Brother, and suggesting moving into Pulte Group and KB Home.

While the recovery in home prices seems to be here to stay, it won’t be a straight shot to the top. Rather, it will be gradual and difficult, and it won’t immediately translate into GDP growth and better valuations for homebuilders. Markets seem to have bet on a recovery that may be years away, and could be negatively surprised in the short-to-medium-run.Forbes

http://www.doctorhousingbubble.com/california-housing-inventory-record-a...

"Taking a break? No way! Time to go shopping for a home and join the herd above. You do not want to miss out in this current mania. The current momentum is clearly unsustainable and anyone looking to buy in a somewhat desirable neighborhood today without a big down payment or solid amounts of cash is simply looking for a dragged out headache. Are you willing to make an offer without even looking at the property? Are you willing to go way over asking price? These are things you may need to do if you want to purchase in this current market in California."