GDP Growth At 3 Percent for Q4; Residential Investment Grows

Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 3 percent in the fourth quarter of 2011, the Bureau of Economic Analysis reported Wednesday, unchanged from the estimate issued a month ago, consistent with market expectations. In its initial report on fourth quarter GDP, the BEA had said the nation’s economy grew at a 2.8 percent pace.

The economic growth rate is the fastest in the past 18 months, but only slightly above the fourth quarter of 2007 when the Great Recession began.

These data are ancient economic history since the first quarter ends Friday. The advance first quarter GDP report will be released on April 27.

The data released so far for January, February, and early March suggest that first quarter 2012 economic activity grew less rapidly than in the fourth quarter of 2011 with many early estimates suggesting a growth rate of about 2 percent.

This latest report showed economic activity 1.6 percent above its year ago level. Capital spending, homebuilding, and government purchases contributed positively to this revision while inventory investment and export subtracted.

Consumer spending was unaffected. As a result of all of these adjustments, real final sales were left unchanged by this revision at 1.1 percent, while real domestic demand was revised up by 0.2 percentage points to 1.3 percent

The faster fourth quarter growth (from 1.8 percent in the third quarter), BEA said, primarily reflected an upturn in private inventory investment, stronger personal consumption expenditures (PCE), and an increase in residential fixed investment.

BEA issues three GDP reports for each quarter: an “advance” report one month after the quarter ends and revisions in each of the following months as more data are received.

Housing – technically reported as “residential fixed investment” – grew at an 11.6 percent annual pace in the fourth quarter, its fastest growth rate since the second quarter of 2010 when it grew at a 22.8 percent rate.

Residential fixed investment grew by $9.1 billion in the fourth quarter, compared with $1 billion in the third.

DSNEWS.com

TransUnion Finds Auto Loan and Credit Cards Paid Before Mortgage

In 2011, consumers with at least one open bankcard, auto loan, and mortgage are more likely to try and stay current on their car payment then keep up with their monthly house payment or credit card bills, according to aTransUnion study.

Consumers have also been more likely to pay for their credit cards before their mortgages for four consecutive years, according to the study.

“The reversal in payment patterns between credit cards and mortgages has been well documented, but our findings were illuminating because it had not been previously clear that auto loans were considered a higher priority by consumers than both credit cards and mortgages,” said Ezra Becker, VP of research and consulting in TransUnion’s financial services business unit.

The TransUnion analysis looked at a sample of approximately 4 million consumers in each quarter of 2011 and found that 39.1 percent were delinquent on a mortgage while current on their auto loans and credit cards. Additionally, 17.3 percent were delinquent on a credit card while current on their auto loans and mortgages, and 9.5 percent were delinquent on an auto loan while current on their credit cards and mortgages.

Becker said, “A few reasons why auto loans have become the preferred payment to make include the need for an auto to get to work or look for employment, and the fact that an auto loan is not a revolving loan – the impact of repossession is greater than the loss of a credit card.”

Becker also added that consumers may have equity in their cars after several years of payments, which is not the case with homes right now.

While the hierarchy is consistent across states, variations do exist between states depending on regional economics and consumer preferences.

On the state-level, 50 percent of consumers in Florida were 30 or more days delinquent on their mortgage while current on credit cards and auto payments, whereas in Texas, the figure was 34.4 percent.

Also, in Florida, 6.1 percent of consumers were 30 days or more delinquent on their auto loans, but current on their credit card and mortgage payments, and in Michigan, the figure was also low at 7.3 percent; in Texas, the percentage of those delinquent on their auto loan but current on their mortgage was more than double at 15 percent.

“This preference for prioritizing auto loans before credit cards and mortgages was seen in all 50 states and the District of Columbia through 2011,” said Becker. “However, the preference for paying auto loans was more pronounced in states like Florida and Michigan, which have seen severe drops in house prices and may have strong consumer affinities for autos, and less pronounced in states like Texas, where house prices have declined less.”

The reversal in trends where more consumers paid their credit cards before their mortgages first occurred in the first quarter of 2008.

Matt Komos, a co-author of the study and TransUnion consultant, said, “It appears that the shift back to prioritizing mortgage payments ahead of credit cards – or auto loans – may only occur once the housing market has stabilized and begins its recovery and the unemployment situation shows significant improvement. Until that time, based on the last four years of data, it would seem that the current payment patterns will remain status quo.”

DSNEWS.com

Forecasting Home Price Recovery: Turnover Rate as a Powerful Indicator

Home prices in many areas are already rebounding from the bottom of the market, according to the MarchHomeValueForecast.com update from Pro Teck Valuation Services.

This month, the company explores the turnover rate, which is the number of non-distressed sales divided by the total housing stock in a particular market. Pro Teck says this calculation is one of the most powerful and, yet, simplest leading indicators of the future direction of home prices.

The company’s data shows that the turnover rate hits bottom six to 18 months before the bottom in home prices. The relationship between turnover rate and sales price is highlighted with the numbers for Los Angeles and Miami-Dade counties.

The peak in sales in these markets occurred in 2005 and approximately a year before the peak in prices, according to the HomeValueForecast.com update. Sales then proceeded to drop sharply for the next few years until their low points in early 2009. After the 2009 trough, regular sales activity jumped sharply on a percentage basis and has been on an increasing trend ever since.

Pro Teck says its fundamental interpretation is that the significant decline in prices made home values so compelling that both new owner-occupant homebuyers and astute U.S. and foreign investors came into these markets. The new demand prevented further declines, creating the longer-term bouncing around the bottom in prices we are experiencing today, the company explained.

“Our data illustrates that many markets actually hit bottom in early 2009 despite others predicting that home prices had much further to fall,” said Tom O’Grady, president and CEO of Pro Teck Valuation Services.

“The Miami and Los Angeles markets are highly representative of what we foresee for most of the important

coastal U.S. real estate markets,” O’Grady noted. “In particular, we see stabilizing and then gradually increasing prices over the next few years.”

Each month, HomeValueForecast.com also includes a listing of the 10 best and 10 worst performing metros according to its market condition ranking model. The rankings are run for the single-family home markets in the 200 largest core-based statistical areas (CBSAs) and derived from a number of real estate market indicators, including: number of active listings, average listing price, number of sales, average active market time, average sold price, number of foreclosure sales, and number of new listings.

“In March, the top ranked metros show a strong connection to states such as Texas and Oklahoma, which directly benefit from the resurgence in the U.S. oil exploration industries,” said Dr. Michael Sklarz, a contributing author to HomeValueForecast.com and a principal with Collateral Analytics, which worked alongside Pro Teck to develop HomeValueForecast.com.

“In addition,” Sklarz said, “most of these markets did not experience price bubbles during the mid-2000s boom period and, thus, never became overpriced in the first place.”

The top CBSAs for March were:

• Midland, Texas
• Tulsa, Oklahoma
• Clarksville, Tennessee-Kentucky
• Billings, Montana
• Provo-Orem, Utah
• Salt Lake City, Utah
• Crestview-Ft. Walton Beach- Destin, Florida
• Dallas-Plano-Irving, Texas
• Corpus Christi, TX Texas
• Oklahoma City, Oklahoma

The bottom ranked metros include a number of areas which are still in the midst of price corrections from the 2000 to 2006 run-ups. At the same time, a number of these markets have experienced sizable declines in employment over the past several years.

The bottom CBSAs for March were:

• Hartford-West Hartford-East Hartford, Connecticut
• Eugene-Springfield, Oregon
• New Haven-Milford, Connecticut
• Daphne-Fairhope-Foley, Alabama
• McAllen, Edinburg, Mission, Texas
• Tyler, Texas
• Hickory-Lenoir-Morganton, North Carolina
• Harrisonburg-Carlisle, Pennsylvania
• Jacksonville, North Carolina
• Cleveland, Elyria, Mentor, Ohio

DSNEWS.com

Initial Unemployment Claims Drop To New Four Year Low

First time claims for unemployment insurance fell 5,000 to 359,000 for the week ended March 24, the Labor Department reported Thursday. However, the previous week’s report – and all data reports going back to 2007 – were revised to show a jump for the week ended March 17 to 364,000 instead of the originally reported 348,000. Even with the upward revisions, claims dipped to the lowest level since April 2008.

Economists had expected initial claims would increase from the original report to 350,000.

Data for the week ended March 17 covered the same “reference” week used by the Bureau of Labor Statistics in its survey for the monthly employment situation report, which includes the unemployment rate. The upward revision dims some of the optimism for the unemployment rate as it showed claims plateauing at a higher level than originally reported. According to the revised data, initial claims for the March reference week increased 2,000 from the February reference week.

Continuing claims, reported on a one-week lag, also fell, dropping 41,000 to 3,340,000 for the week ended March 17, the third straight week-over-week decline. Continuing claims reflect the other part of the employment picture hinting at hiring and were down 87,000 from mid-February, hinting at an uptick in hiring, though continuing claims could contract if benefits ran out for some individuals as well.

The four week moving average for initial claims improved to 365,000, down 3,500 from the previous week, while the four week average for continuing claims declined 21,750 to 3,387,750.

The revised data changes the overall picture for initial claims, which had originally been on a steady downward drift. The new numbers show initial claims have increased in seven of the first 12 weeks of this year, suggesting the pace of layoffs may not have slowed. Continuing claims are also declining, but the underlying reasons are not as clear. To be sure, some of the decline could be attributed to individuals finding jobs, but also to the exhaustion of regular benefits, which last for 26 weeks.

The number of people collecting benefits under all unemployment insurance programs, reported on a two-week lag, fell 131,488 to 7,153,252. That tally though includes data from non-seasonally adjusted reports, making conclusions less certain. According to the latestBLS report, 7.24 million people were officially counted as unemployed.

According to the Labor Department detail, also reported on a one-week lag, the largest increases in initial claims for the week ending March 17 were in Florida (+1,876), Hawaii (+469), Mississippi (+405), New Mexico (+292), and Iowa (+278), while the largest decreases were in New York (-3,103), Texas (-1,787), Pennsylvania (-1,606), California (-1,603), and Ohio (-1,419).

Experts Expect to See Broad Improvements, Home Prices to Rise in 2013

The Urban Land Institute released its Real Estate Consensus Forecast Wednesday morning, and overall, the 38 real estate economists and analysts surveyed projected broad improvements for the economy.

With signs of improvement in the housing sector already emerging, participants expect to see housing starts nearly double by 2014 and project home prices will begin to rise in 2013.

The average home price, which has declined somewhere between 1.8 percent and 4.1 percent over each of the past three years, according to FHFA data, is expected to stabilize in 2012, followed by a 2 percent increase in 2013, and a 3.5 percent increase in 2014.

Single-family housing starts are expected to rise from 428,600 starts in 2011 to 500,000 in 2012, and jump to 800,000 in 2014.

The unemployment rate is expected to continue falling, with the rate dropping to 8 percent by the end of 2012, 7.5 percent by the end of 2013, and 6.9 percent by the end of 2014.

GDP is expected to grow by 2.5 percent in 2012 and grow to 3.2 percent in 2014.

But, with the improving economy is inflation and higher interest rates. These rising rates will increase costs for investors, and those surveyed do not expect substantial increases in real estate capitalization rates for institutional-quality investments (NCREIF cap rates), which are expected to remain steady at 6 percent in 2012 and 2013 and then rise slightly to 6.2 percent in 2014.

By property type, National Council of Real Estate Investment Fiduciaries (NCREIF) total returns in 2012 are expected to be strongest for apartments (12.1 percent), followed by industrial (11.5 percent), office (10.8 percent), and retail (10 percent).

By 2014, returns are expected to be strongest for office (10 percent) and industrial (10 percent), followed by apartments (8.8 percent) and retail (8.5 percent).

ULI CEO Patrick L. Phillips advised that while the ULIForecast suggests that economic growth will be steady rather than sporadic, it must be viewed within the context of numerous risk factors such as the continuing impact of Europe’s debt crisis; the impact of the upcoming presidential election in the U.S. and major elections overseas; and the complexities of tighter financial regulations in the U.S. and abroad.

“While geopolitical and global economic events could change the forecast going forward, what we see in this survey is confidence that the U.S. real estate economy has weathered the brunt of the recent financial storm and is poised for significant improvement over the next three years.,” said Phillips.

Non-housing sector growth, according to the ULIForecast, which was conducted from February 23 to March 12, 2012

-For the apartment sector, year-end vacancy rates are expected to decline further in 2012 to 5 percent, and then rise slightly to 5.1 percent in 2013 and to 5.3 percent in 2014.

-Apartments are expected to show strong rental rate growth, rising 5 percent in 2012, then slowing down to 4 percent in 2013, and 3.8 percent in 2014.

-Issuance of commercial mortgage-backed securities (CMBS) is expected to increase from $33 billion in 2011 to $40 billion in 2012, $58 billion in 2013, and $75 billion in 2014.

-Ten-year treasury rates are projected to rise to 2.4 percent by the end of 2012, 3.1 percent for 2013, and 3.8 percent for 2014.

-Future equity REIT returns are expected to rise to 10 percent in 2012, then drop to 9 percent in 2013, and 8 percent in 2014.

-Returns for institutional-quality direct real estate investments are expected to trend lower, with returns of 11 percent in 2012, 9.5 percent in 2013, and 8.5 percent in 2014.

-Hotel occupancy rates are projected to increase to 57 percent by 2012, 58.2 percent by 2013, and 59.2 percent by 2014.

-For the industrial/warehouse sector, vacancy rates are expected to decline steadily over the next three years to 12.8 percent by the end of 2012, 12.1 percent in 2013, and 11.5 percent by the end of 2014.

DSNEWS.com

Home Prices Have Been Rising for Three Months: Report

Standard & Poor’s reported Tuesday that it’s closely watched Case-Shiller index declined in January for the fifth straight month, with both the 10-city and 20-city composite readings slipping 0.8 percent from December.

But according to John Burns Real Estate Consulting(JBREC), that’s stale news and doesn’t reflect what’s actually happening in the market right now. In fact, the independent research company says home prices are rising.

JBREC conducted its own analysis of home prices in 97 markets and found that over the January-to-March period prices are up in 90 of them. The average price increase over the last three months is 1.1 percent, or a 4.5 percent annual rate, according to data issued by JBREC just before S&P’s Case-Shiller release.

The company also found that home prices have been trending up nationally since January, and even more markets have turned positive recently, with 93 of the 97 markets it analyzed showing appreciation over the last month.

So why are other industry indices still painting a picture of the doom and gloom of freefalling home prices? Wayne Yamano, VP and director of research for JBREC, says it’s because most price indices are on a three-month lag.

Yamano explains that after hundreds of hours of research vetting 23 data sources and running calculation after calculation, JBREC developed the Burns Home Value Index (BHVI), which calculates home values based on prices that are set at the time purchase contracts are negotiated and signed.

Nearly all other indices are based on when the purchase transaction closes, he says, which is typically two months after the purchase contracts were negotiated. Then, it takes one to two months for the closing price data to be compiled and reported, according to Yamano.

He contends that the BHVI is a better assessment of current changes in home prices and precedes median price data from the National Association of Realtors by three months and the S&P/Case-Shiller index by four to six months.

“It is current because it uses what is happening in MLSdatabases all over the country, as well as some leading indicators we have determined are reliable,” Yamano explained. “We call it a Home Value index because it is partially based on an ‘electronic appraisal’ of every home in the market, rather than just the small sample of homes that are actually transacting.”

JBREC has calculated BHVI index values for the United States and 97 major metro areas, with history going back to January 2000.

“The slow housing market recovery is underway, and it can accelerate or turn down quickly,” said Yamano. “The future is uncertain, and it is even more uncertain when you are using data that is three months old.”

 

DSNEWS.com

Builder Confidence Unchanged in March

 Builder confidence in the market for newly built, single-family homes was unchanged in March from a revised level of 28 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.  This means that following five consecutive months of gains, the HMI is now holding at its highest level since June of 2007.

“While builders are still very cautious at this time, there is a sense that many local housing markets have started to move in the right direction and that prospects for future sales are improving,” said Barry Rutenberg, chairman of the National Association of Home Builders (NAHB) and a home builder from Gainesville, Florida. “This is demonstrated by the fact that the HMI component measuring builder expectations continued climbing for a sixth straight month in March, to its highest level in more than four years.”

“Builder confidence is now twice as strong as it was six months ago, and the West was the only region to experience a decline this month following an unusual spike in February,” observed NAHB Chief Economist David Crowe. “That said, many of our members continue to cite obstacles on the road to recovery, including persistently tight builder and buyer credit and the ongoing inventory of distressed properties in some markets.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

While the HMI component gauging current sales conditions declined one point to 29 in March, the component gauging sales expectations in the next six months gained two points to 36 and the component gauging traffic of prospective buyers held unchanged at 22.

Regionally in March, the HMI gained five points to 25 in the Northeast, two points to 32 in the Midwest and two points to 27 in the South, but fell 10 points in the West following a 22-point gain in the previous month.

NAHB.com

Seniors and Young Adults Will Influence U.S. Housing Markets

Aging baby boomers and their echo boomer children will significantly impact trends in the nation’s housing market over the next 20 years. In a new report released by the Bipartisan Policy Center, “Demographic Challenges and Opportunities for U.S. Housing Markets,” researchers at the National Association of Realtors®, The Urban Institute, and the University of Southern California analyze key demographic trends and their likely influence on housing and homeownership in the U.S.

Over the next two decades, the aging baby boomer generation will swell the nation’s senior population by 30 million. That demographic shift will likely help increase the supply of housing, since people over age 65 typically release much more housing than they absorb.

“The Northeast and Midwest are most likely to see a large number of older homeowners selling their homes to younger homeowners as the baby boomers age,” said NAR Chief Economist Lawrence Yun. “This increased supply could mean additional buying opportunities for echo boomers. That generation will absorb 75-80 percent of the available inventory of owner-occupied housing by 2020.”

The echo boom generation includes nearly 65 million people born between 1981 and 1995. NAR’s analysis illustrates the potential impact of economic and housing policy on this generation’s demand for housing as they come of age.

“Housing, jobs and the economy are inextricably connected,” said Yun. “A strong recovery with favorable housing market conditions would encourage substantial growth in echo boomer households, which would help absorb the current vacant inventory and stabilize conditions for residential construction. Under a reasonable ‘middle’ recovery scenario, approximately 12 million new households will be formed over the next decade, requiring construction of up to 15 million new housing units.”

NAR President Moe Veissi noted that current market trends favor would-be homeowners of all ages. “As the supply of rental housing continues to fall, rents are increasing,” said Veissi, broker-owner of Veissi & Associates Inc., in Miami. “At the same time, affordability for homeowners is at a record high. For buyers who qualify and are ready to assume the responsibilities of owning a home, opportunity is knocking.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

National Association of Realtors

Pending Home Sales Ease in February but Solidly Higher Than a Year Ago

Pending home sales were down slightly in February but remain notably above the pattern in the first half of last year, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, eased 0.5 percent to 96.5 in February from 97.0 in January but is 9.2 percent above February 2011 when it was 88.4. The data reflects contracts but not closings.

Lawrence Yun, NAR chief economist, said we’re seeing the continuation of an uneven but higher sales pattern. “The spring home buying season looks bright because of an elevated level of contract offers so far this year,” he said. “If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that’s what we’re expecting with sales rising 7 to 10 percent in 2012.”

The PHSI in the Northeast slipped 0.6 percent to 77.7 in February but is 18.4 percent above a year ago. In the Midwest the index jumped 6.5 percent to 93.8 and is 19.0 percent higher than February 2011. Pending home sales in the South fell 3.0 percent to an index of 105.8 in February but are 7.8 percent above a year ago. In the West the index declined 2.6 percent in February to 99.3 and is 1.8 percent below February 2011.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

National Association of Realtors

Home Mortgage Interest Deduction is Pure Poetry

 

American taxpayers may worry they’ll lose their most hallowed deductions like home mortgage interest, charitable contributions, state taxes or pension plan contributions. Given how ingrained the mortgage interest deduction is in the American psyche, I doubt that one will go. Besides, the U.S. housing market has already had to contend with a great deal of turmoil.

The mortgage meltdown and plummeting house prices doused cold water on the American dream. Are we ready for a chop to the mortgage deduction?  Not really. The American my-home-is-my-castle mentality is enshrined in the tax code.

The home mortgage interest deduction may be the biggest item but it isn’t the only one. The deduction for property taxes is also important. In fact, the tax code’s subsidy of home ownership is so important it’s deserving of poetry:

Housing and taxes, there’s a hand in glove fit;
And if the glove fits, you never acquit!
Come one and come all, in your own house you’ll sit;
How much will it cost you? You’ll pay just a bit!
Homeownership’s tax perks are steeped in our lore;
Tax laws favor owners, right down to the core.
Keep buying new houses, it’s never a chore.
American homestead? But wait, there’s still more!
Deduct all your interest, your property tax, too.
Uncle Sam will help pay, yes, he’ll see you through.
No one would still rent if they had half a clue.
And so it all went—till we got subprime flu.
Then Bad Lenders swooped down, with a teaser loan rate;
They tricked us to buy, so now we’re irate.
“These loans are so bad, we thought they’d be great.”
“And now we can’t pay, so what is our fate?”
COD income? Boy, that sounds unfair;
It surely would make all in housing despair;
Just default on your loan, repay don’t you dare!
Foreclose and forget, for the devil may care!
Yet when debt is canceled, there’s tax you must pay.
When your debt is discharged, a tax comes your way;
But Congress said, “No, there’ll be no tax today;
We’ll just wipe the slate clean, no tax cost, Hooray!”
Congress the fixer rushed in like a white knight;
“If loan rates go climbing, we won’t let them bite;
Real soon you’ll be happy, no more rate hikes in sight.
We’ll pass legislation to make it all right!”

FORBES