Picking up from yesterdays blog “Foreclosure Home Inventory Tightens, Prices Rise” not only is foreclosure home inventory dropping and home prices rising – but home equity (the difference between market value and mortgages on a property) is finally growing after five years of declines. Let’s all do the happy dance!
The main stream press is no longer suppressing the news that the housing market is well into a solid recovery. This just in from the Los Angeles Times. I’ll share the “rest of the story” when we meet this Wednesday in my live, free webinar for new foreclosure home buyers and investors (more here).
LA Times: Good news about real estate: Home equity is growing again
You might have missed some of the positive trends under way for real estate. Start with home equity. It’s growing again significantly after five years of declines and stagnation.
This is a huge piece of good news that hasn’t received much attention.
After hitting a low of $6.45 trillion in the final three months of 2011, Americans’ combined home equity jumped nearly $1.3 trillion during the next nine months to $7.71 trillion — a 20% gain — according to the “flow of funds” quarterly estimate released in December by the Federal Reserve.
Equity is a key measure of wealth — often the largest single item on a family’s financial balance sheet — and the Federal Reserve tracks the estimated equity holdings of millions of owners to come up with its quarterly numbers. As recently as 2007, homeowners’ collective equity exceeded $10.2 trillion. Between that year and late 2011, owners lost nearly $4 trillion in real estate wealth.
So the $1.3-trillion turnaround during the first nine months of 2012 was a big deal.
It reflected the first sustained rebound in home prices in a long time in many — though not all — local real estate markets. In a
study released just before Christmas, researchers at Zillow.com found that of 177 major metropolitan markets, 135 had experienced net increases in cumulative home values during 2012.
Zillow broke it down into specific dollar amounts added to owners’ net worth, city by city:
- Owners in Los Angeles gained a cumulative $122.1 billion;
- Washington, D.C., owners gained $40.4 billion;
- San Diego, $31.2 billion;
- Seattle, $20.1 billion;
- Boston just under $16 billion;
- Tampa, Fla., $8 billion:
- Sarasota, Fla., $5 billion;
- Tucson, $3.8 billion;
- Oklahoma City, $3.3 billion;
- Columbus, Ohio, $3.5 billion.
These are big numbers and hard to grasp, but think of it this way: The odds are good that even if you own a home in a market that experienced severe price declines during the housing bust, the value of your home rose last year, at least modestly. Even if you have negative equity, it’s likely that, thanks to appreciation in your area and your continuing payment of principal on your mortgage, your equity position improved.
Some of the most impressive gains in values were in areas that suffered the deepest price plunges — and the most painful losses in owners’ equity — between 2007 and 2011. According to a study by Realtor.com, list prices of houses in Phoenix were 21.4% higher in November than they were 12 months earlier. In the Riverside-San Bernardino metropolitan area, prices were up 13.3%; in Las Vegas 10.6%; and in Miami 10%.
What’s causing price surges like these in cities that cratered just a few years back?
Part of it is a recognition by buyers, including investors, that prices hit bottom and won’t drop any further. The intrinsic economic value of houses and land simply exceeded the near-giveaway, foreclosure-sale prices prevalent in the post-recession years. Now prices are correcting upward as buyers come back into the market.
But something else has been at work…
Virtually all major real estate markets across the country have seen declines in the availability of homes for sale, in part because some sellers still fear that they won’t get a good price, and because in some areas large numbers of potential sellers are still underwater on their mortgages. In Seattle, there were 43% fewer homes listed for sale toward the end of 2012 than at the same time the year before. In San Francisco, the deficit was 415; in Los Angeles 37.5%; and in metropolitan Washington around 28%.
Fewer listings mean more competition for what’s available for sale.
That can bring multiple offers, higher prices and even the return of escalation clauses in contracts, where buyers’ offers contain automatic increases in multiple bid situations. That’s already well underway in parts of California, the Pacific Northwest and Washington, D.C., among other areas.
Ultimately, higher prices should begin to convince more sellers that they should list their homes, pushing inventory higher and creating a healthier, more balanced real estate environment for 2013.
BOTTOM LINE: Savvy buyers and investors are taking advantage of the opportunities that surround them now, before they are gone. There is a backlog of pre-foreclosures with equity and short sales that have yet to hit the market. Focus on finding those “unlisted” motivated foreclosure home sellers in your own backyard… and put together a deal using outside private money… and you will build in a handsome profit for yourself every time. Let’s get your New Year started right! Come learn the details on how “Foreclosure Investors: Make Fast Profits Now” for free in my live webinar this Wednesday at 6pm PDT, 9pm EST.
Register and details here. Talk to you then…