MONEY home prices

Slowing Price Gains Reveal Little Exuberance for Homes

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Dimitri Vervitsiotis—Getty Images

Looking ahead, the rate of home price growth may slow even further, especially if mortgage rates increase.

While housing prices continue to rise, the rate of that growth nationally slowed in June, according to a leading gauge of the real estate market.

The S&P/Case-Shiller Home Price Indices showed that home prices throughout the country increased 6.2% since last year. Meanwhile, separate indexes that track 10 and 20 large U.S. cities showed gains of 8.1% during the same time period.

Though decent, those gains were a far cry from the double-digit growth in home prices late last year. Moreover, all three indexes showed deceleration from the prior month, and every city measured experienced lower year-over-year price growth.

“Home price gains continue to ease as they have since last fall,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “For the first time since February 2008, all cities showed lower annual rates than the previous month. Other housing indicators — starts, existing home sales and builders’ sentiment — are positive. Taken together, these point to a more normal housing sector.”

Blitzer also cautioned that an increase in interest rates, which Federal Reserve chair Janet Yellen hinted at last week, may mean further deceleration if they lead to higher mortgage rates.

“Bargain basement mortgage rates won’t continue forever,” he said. “Recent improvements in the labor markets and comments from Fed chair Janet Yellen and others hint that interest rates could rise as soon as the first quarter of 2015. Rising mortgage rates won’t send housing into a tailspin, but will further dampen price gains.”

To be sure, home prices are still going up across the board. All cities reported higher prices for the third consecutive month, and price growth in markets such as Dallas and Denver has continued unabated.

Nationally, average home prices in June are back to Spring, 2005 levels. But city composites are still roughly 17% down from their peak prices in June/July of 2006.

MONEY home prices

These Places Have the Best Housing Bargains in the Country

Scioto River and Columbus, Ohio skyline at dusk.
Columbus, Ohio, skyline at dusk. VisionsofAmerica/Joe Sohm—Getty Images

As the market tries to adjust to a post-recession world, there are plenty of deals to be had. But there are also plenty of markets where housing is more unaffordable than ever.

With housing price growth slowing down nationwide, and a gradually improving economy, many Americans who’ve been waiting to make a decision on a home are wondering if it’s time to buy or sell.

Here’s some data that might help with those decisions: A new study by RealtyTrac determined which housing markets are more and less affordable relative to their historical averages. The real estate data firm computed the numbers by determining what percentage of an area’s median income would be needed to make payments on a median-priced home in over 1,000 counties, and then compared that to the county’s historical price-to-income ratio over the past 14 years.

So which areas are looking like a bargain? RealtyTrac identified 66 counties with a combined population of 16 million (about 5% of the total survey area’s population) where home prices are lower than historical averages and the unemployment rate was 5% or lower—well below the national unemployment rate of about 6.2%.

This, according to RealtyTrac, is the best way to measure affordability because many markets with cheap housing don’t have quality jobs to offer to new residents. Some undiscovered markets are “undiscovered for good reason because their economies are struggling,” says Daren Blomquist, vice president at RealtyTrac. “A good example of that is Detroit. Affordability alone isn’t an indication that a market is a good one to buy in or invest in.”

The study found Columbus, Ohio; Oklahoma City; Tulsa; Akron, Ohio; Omaha; Greenville, S.C.; and Des Moines, Iowa, are among the markets with an advantageous combination of employment and affordable housing.

Courtesy of RealtyTrac

Why is housing in these areas undervalued? Basically, the overall real estate market is still recovering from the recession, and prices have yet to adjust in certain markets as investors are slow to discover lesser-known areas with strong economic growth. This pro-buyer environment might not last much longer, though. Blomquist says there’s been an uptick of institutional investor purchasing in Columbus, which means prices are set to rise in the near future.

There’s good news for prospective sellers as well. Prices in over one-third of the counties surveyed are less affordable than their historical averages, suggesting homes there may be over-valued. These cities include San Francisco; Portland, Oregon; Austin; San Antonio; Houston; and Atlanta.

Courtesy of RealtyTrac

Should sellers jump at the high prices? If you’re a homeowner in one of these markets, a lot of things are going your way. As prices rise, institutional investors are rushing to invest in these markets, inflating values even further. But there’s also a lack of supply because builders are still reluctant to start new construction.

“It’s a sellers market still [in these areas] because you have a combination of strong demand from this new breed of buyers and low supply because builders are very hesitant,” says Blomquist. “If you’re a seller, you’re not competing against too many others and you have a long liner of buyers.”

However, he cautions that for sellers looking to buy another home in the same market, less affordable home prices may be a double-edged sword. “The catch-22 is if you’re trying to buy too — if that’s the case, then it’s not a great market to buy in.”

MONEY home prices

Case-Shiller Index Shows Home Price Growth Slowing

Home prices increased at their slowest pace since February 2013, according to the latest report on the S&P/Case-Shiller Home Price Index.

The index, which compiles a 10- and 20-city composite of home prices, showed the 10-city composite posted price gains of 9.4% year-over-year, while the 20-city group showed gains of 9.3%. Both results were significantly lower than the 10.9% and 10.8% year-over-year increases the respective composites showed last month, and much less than the 9.9% gains analysts expected from the 20-city index.

All 20 cities posted some month-to-month price gains before seasonal adjustment, but 14 of 20 saw prices decline once seasonal factors were taken into account.

This is the second bit of bad news for home-sellers this month. On Monday, the National Association of Realtors reported that pending home sales dropped 1.1% in June, and were down 7.3% since June of 2013. Lawrence Yun, the NAR’s chief economist, blamed tight credit, low inventory, and flat wages for the decline. However, Yun predicted sales would increase slightly in the second half of the year, partially because price appreciation has slowed.

“Housing has been turning in mixed economic numbers in the last few months,” said David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. “Prices and sales of existing homes have shown improvement while construction and sales of new homes continue to lag. At the same time, the broader economy and especially employment are showing larger improvements and substantial gains.”

Of the 20 cities measured by the Case-Shiller index, Charlotte was the only area to see its annual growth rate improve. Las Vegas experienced some slowdown in price appreciation, but remained the city with the fastest price growth (16.9% YOY), followed by San Francisco (15.4% YOY). Washington had the lowest year-over-year growth at 5.8%.

MONEY Housing Market

The Housing Market Won’t Be Undervalued Much Longer

Trulia's latest analysis shows homes in three-fourths of major U.S. cities are still undervalued, while seven are more than 10% overvalued (most in California). Even there, prices are no where near boom frothiness.

Trulia’s Bubble Watch reveals whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble – and the bigger the risk of a future price crash.

Sharply rising prices aren’t necessarily a sign of a bubble; a bubble is when prices look high relative to fundamentals. Bubble watching is as much an art as it is a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources, including the Trulia Price Monitor as a leading indicator of where home prices are heading. We then combine these various measures of fundamental value rather than relying on a single factor, because no one measure is perfect. Trulia’s first Bubble Watch report, from May 2013, explains our methodology in detail. Here’s what we found.

Home Prices are 3% Undervalued Nationally We estimate that home prices nationally are 3% undervalued in the second quarter of 2014 (2014 Q2), which is far from bubble territory. During last decade’s housing bubble, home prices soared to a level that was 39% overvalued in 2006 Q1, then dropped to being 15% undervalued in 2011 Q4. One quarter ago (2014 Q1), prices looked 5% undervalued, and one year ago (2013 Q2) prices looked 8% undervalued. This chart shows how far current prices are from a bubble:

At this pace, home prices nationally should be in line with long-term fundamentals – i.e., neither over- or undervalued – by the last quarter of 2014 or the first quarter of 2015. The good news for bubblephobes is that price gains are now slowing down while prices still look (slightly) undervalued. We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not.

Even in the Bubbliest Markets, It’s Not 2006 All Over Again Eight of the 10 most overvalued housing markets are in California, with Orange County, Los Angeles, and Riverside-San Bernardino in the top four. However, they are not seeing the return of last decade’s bubble. These California markets are much less overvalued than they were at the height of the bubble. Orange County, today’s frothiest market, is just 17% overvalued now versus being 71% overvalued in 2006 Q1. Among the most overvalued markets today, only Austin looks more overvalued now (13%) than in 2006 Q1 (8%) – and that’s because Austin (and Texas generally) avoided the worst of last decade’s bubble and bust.

Top 10 Metros Where Home Prices Are Most Overvalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Orange County, CA +17% +71% 9.6%
2 Honolulu, HI +15% +41% 5.3%
3 Los Angeles, CA +15% +79% 12.7%
4 Riverside-San Bernardino, CA +13% +92% 18.8%
5 Austin, TX +13% +8% 9.7%
6 San Jose, CA +11% +58% 10.4%
7 Oakland, CA +10% +72% 14.8%
8 Ventura County, CA +9% +73% 12.6%
9 San Diego, CA +7% +69% 11.2%
10 San Francisco, CA +6% +51% 11.6%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Only in Akron and Cleveland are prices undervalued by more than 20%. Furthermore, in those two markets, home prices are rising below the national average of 8.0%. But in several of the most undervalued markets, including Detroit and Chicago, prices are now rising year-over-year in the double digits. But those markets are unlikely to stay on the most-undervalued list for many more quarters.

Top 10 Metros Where Home Prices Are Most Undervalued
# U.S. Metro Home prices relative to fundamentals, 2014 Q2 Home prices relative to fundamentals, 2006 Q1 Year-over-year change in asking prices, May 2014
1 Akron, OH -21% +18% 4.7%
2 Cleveland, OH -21% +18% 6.3%
3 Detroit, MI -19% +38% 15.2%
4 Dayton, OH -16% +13% 12.1%
5 Worcester, MA -15% +43% 4.4%
6 Memphis, TN-MS-AR -14% +11% 3.2%
7 Toledo, OH -14% +22% 10.0%
8 Chicago, IL -14% +36% 13.5%
9 Lakeland-Winter Haven, FL -14% +54% 3.8%
10 Providence, RI-MA -14% +52% 2.9%
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued, among the 100 largest metros. Click here to see the price valuation for all 100 metros: Excel or PDF.

 

Three-Fourths of Markets Still Undervalued Of the 100 largest metros, home prices in 76 of them look undervalued. But the number of overvalued markets – 24 – has climbed up from 19 last quarter (2014 Q1) and just 5 last year (2013 Q2). Most of the 24 overvalued markets are overvalued just a bit, with 17 overvalued by less than 10% and 7 overvalued by more than 10%. While the number of overvalued markets is rising, there remains little reason to worry about a new, widespread bubble forming. The last two years of strong price gains have been from a relatively low level and still haven’t pushed home prices nationally above our best guess of their long-term fundamental value.

See the original article with complete charts here.

Jed Kolko is the chief economist of Trulia.

MONEY Ask the Expert

How does a quitclaim deed work?

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Robert A. Di Ieso, Jr.

Q: What are the tax implications of using a quitclaim deed to transfer my home? – Danny Chang, Los Angeles

A: A quitclaim deed reflects a transfer of property, and is often used when transferring property between family members (when parents give property to a child, or when homeowners divorce).

About those taxes: Let’s say parents use a quitclaim to give the home they bought for $200,000 to a child. The transfer is a gift, not a taxable sale. So it does not trigger a tax-deductible loss (even if the child paid $1 for the property) because losses on transfers to “related parties” are not tax-deductible, says accountant and attorney G. Scott Haislet of Lafayette, Calif.

Mom and Dad don’t report the gift on their income tax return; neither does the child (gifts from parents are income tax-free).

The parents would have to file a gift tax return (IRS form 709), including an appraisal documenting the value of the home at the time of the gift. The transfer will likely not trigger a gift tax, Haislet says, but may affect the parents’ estate tax at death. Caveat: If the home is mortgaged, and the recipient of the property takes over the mortgage, that may be considered income to you. In that case, the transaction would be considered “part sale, part gift,” Haislet says. Consult your own CPA.

Money 101: Will I pay income taxes on the sale of my home?

MONEY Housing Market

Why Median Home Prices Are Rising: It’s More Than Just the Values

Home prices keep rising, but not just because they're worth more. Sales of higher-end homes are skewing that median home price figure upward.

The median home price rose 5.1% to $213,400 from a year ago, the National Association of Realtors announced yesterday.

RealtyTrac’s numbers out today, which include foreclosures sales not covered by the NAR report, have median prices up 13% year-over-year.

So does that mean your home value rose 13%?

Of course not, and not just because those figures cover the entire United States. Clearly home values vary widely based on the characteristics of your local market – employment growth, the pace of new construction, incomes, type of home, all sorts of things.

The median home price is shaped by other factors having nothing to do with any particular home or market but, rather, the specific mix of homes sold in that month.

One of the trends we’ve been seeing for a while now is that more higher-priced homes are selling than lower-priced homes. That’s for two reasons:

First, the volume of bargain-priced foreclosures continues to shrink. RealtyTrac’s report says foreclosures and short sales accounted for 14.3% of home sales in May, down from 15.9% a year ago. Consider that the median price of distressed homes was $120,000 versus $190,000 for non-distressed and you can see how simply having fewer troubled properties in the mix would be a powerful pricing boost.

Second, move-up buyers, the ones buying the $500,000-plus homes, are in better financial shape. They have the credit scores to qualify for a mortgage. They also have, more than likely, equity in their current home they can use for a new down payment as well as investments.

See what’s happening at RealtyTrac’s chart of home sales by price tier:

Price Range Share of Sales YoY Change
$50k-$100k 13% -22%
$100k-$200k 33% -5%
$200k-$300k 20% 6%
$300k-$400k 12% 11%
$400k-$500k 7% 17%
$500k-$750k 7% 15%
$750k-$1M 2% 23%
$1M-$2M 2% 24%

Other highlights from RealtyTrac’s report:

Metropolitan areas with sales declines from a year ago include Boston (-23%), Fresno (-22%), Orlando (-18%), Los Angeles (-16%) and Phoenix (-13%).

Areas with the highest share of foreclosures and short sales were Las Vegas (27%), Lakeland, Fla. (33%), Modesto, Calif. (32%), Jacksonville, Fla. (32%) and the Riverside region of southern California (29%).

MONEY Housing Market

The Housing Number That Really Matters: 2.28 Million

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Wiskerke / Alamy

The number of homes on the market increased enough to slow down surging price gains and make it a little bit easier for buyers. Bidding wars aren't going away, though.

Home buyers worried they will be stuck in bidding wars for a scarce number of homes can relax a little bit. The number of homes for sale in May is up 6% over last year, to 2.28 million, reported the National Association of Realtors.

At the current pace, it would take 5.6 months to sell all the homes on the market. Six months is considered a healthy balance between buyers and sellers. The 5.6 number means it’s still, on average, more of a sellers’ market, but far better than late 2012 and early 2013, when there was less than a five-month supply of homes.

For May, sales continued to strengthen after a “lackluster” first quarter, said NAR economist Lawrence Yun. The median price of existing homes for the country, which includes condos, was $213,400, up 5.1% over a year ago.

But let’s get back to inventory, which has been driving much of what’s been happening in housing.

Around late 2011, buyers began tiptoeing back into the market, eating into the oversupply of distressed properties that had swelled post-bust. A year later, more confident buyers and an investor boom pushed the pendulum toward housing shortage. This chart shows that trend and how it’s been easing so far this year.

 

Source: National Association of Realtors

This is great news, because in some cities buyers have become so frustrated by the scarce choices that they’ve given up. Especially in hot cities (Denver, all the big cities in Texas, southern California) and in the best neighborhoods in most cities, buying a home has become about how to win a bidding war.

Even now, homes are still selling relatively quickly—the median number of days a home spent on the market in May was 47. But at least that’s six days more than a year ago, giving buyers some room to breathe.

That in turn means a slowdown in the hefty price gains that have marked the last 18 months or so of the housing recovery, but the market needs more, Yun says. “Rising inventory bodes well for slower price growth and greater affordability,” he said in a statement. But “new home construction is still needed to keep prices and housing supply healthy in the long run.”

New construction is a bit wobbly, however. Yes, builders are building more homes, but they are mostly apartments (the rental market is still going gangbusters). Builders have been slow to commit, worried about the financial health of buyers. Economist Brad Hunter of MetroStudy, which analyzes the new home industry, says consumers are still skittish, but traffic through builders’ showrooms continues to improve. So sales should rise soon, he says.

As with everything real estate, it’s all local. Construction is healthy in southern California, Texas and Florida, while Arizona and Nevada are down, Hunter notes.

And, it matters where you fall on the income spectrum. That’s another key aspect of the current housing market: Pricier homes are selling better, while the market for first-time home buyers is depressed. The percentage of first-time home buyers in the existing-home space fell again in May, to 27%, according to NAR.

In new construction, builders have begun targeting young buyers with lower-priced homes, but Hunter sees too many obstacles: high student loan debt and low employment among millennials.

Another obstacle: lending standards. The credit score needed to get a mortgage has been trending down, but very slowly. Real Estate Economy Watch, writing about an Ellie Mae report, said 32% of closed loans had an average credit score of under 700 in May, compared with 27% a year ago. The median credit score for purchases (not refinances): 755.

The median scores for FHA loans fell to 684 from 695 last year–FHA loans are favored by first-time buyers because of low down payment requirements.

The trend should draw more potential buyers off the fence, says Cameron Findlay, chief economist for Discover Home Loans. “When everyone’s talking about how difficult it is, if you’re a borrower on the cusp, you don’t bother going through the hoops and trying to apply, you just stay back,” he says. “Now they’re saying, ‘Let me see.’”

MONEY selling a home

8 Ways to Screw Up Your Home Sale

With the positive momentum in the housing market, more homeowners are ready to put their homes on the market. Don't mess it up.

If you’ve been paying attention to the news headlines, you’ll know that it’s a “sellers’ market” in many cities right now. But beware – just because prices are up and inventory is down and the market seems prime, don’t become overconfident or careless with your own home. There are plenty of ways you could still sabotage your sale:

  1. Selling A House Via “For Sale by Owner” (FSBO). Trying to sell your home by yourself is sheer madness. Many people think that it’s easily doable because the market is hot and you can save on the commission. Despite the lure of not having to pay an agent a commission, you need the expertise and know-how of a professional, who can help you navigate the stacks of paperwork, provide priceless neighborhood knowledge – and negotiate on your behalf. The numbers also don’t lie: the typical FSBO home sold for $174,900, compared to $215,000 for agent-assisted home sales.
  2. Mispricing Your Home. Overpricing your house is a huge money-losing mistake. Yes, the market is hot. But not hot enough that you can push the envelope and price it for way more that the comps will support. Overpricing your home is dangerous – and you can end up burned in this ‘hot market.’ You run the risk that your home will sit on the market for weeks and months and become the stale listing that every home seller wants to avoid. Know the competition and set the right price – never overprice too high in hopes that someone will unknowingly overpay.
  3. Using Lousy Photos. – 90% of all home shoppers start their home search online, and bad photos can tank your home sale. If you let your agent grab a few fast photos of your house on their cell phone on a rainy day and use those for all your online listings, then you’ll likely get passed over for a home with more flattering photos. You also must showcase your house on its ‘best day.’ When the light is shining through the windows, when the countertops and other spaces are clear of clutter and unnecessary items. It astounds me when any home sellers (and their agents) allow photos of rooms scattered with old clothes and filthy, messy kitchens. Every photo should illicit a “wow!”
  4. Refusing to Make Obvious Repairs Prior to Sale. You will lose money if you don’t take care of repairs before the house goes on the market. Showing the house when there are leaking faucets, cracks in the walls, water stains on the celling, and a busted hot water heater are all ways to turn off potential buyers. When you do find a buyer willing to overlook those necessary repairs, they are going to want discounts or credits worth far more than what it would have cost you to make the repair yourself.
  5. Keeping All Your Clutter and Junk. “Oh the house looks fine” you say to your agent. “It’s going to take too long to pack up and get rid of all our extra stuff” you say to your husband. “Buyer’s will see right past all my boxes and collections of plaster cookie jars and shelves overflowing with nick-knacks” you think to yourself. It may sound like a good idea, but it’s not a smart approach. Believe me, I have seen homes come on the market that obviously could have sold so much faster, had the home owners spent just one weekend depersonalizing and removing all their “stuff” inside the home. Clutter makes your home seem smaller, ultimately eating equity and killing deals. Period. De-clutter immediately! Take inventory of all your possessions and think to yourself: should I save it, store it, sell it, or chuck it?
  6. Ignoring the Backyard – Everybody knows that fantastic front curb appeal sells homes, but don’t forget what’s out back. In the summer and fall months, everyone’s attention turns to the outside spaces, where they dream of warm summer nights and outdoor entertaining. If you don’t maximize and capitalize on your backyard, you are missing a huge component of your warm weather living spaces. That back yard patio is not just for storage of old bikes and broken patio furniture that should have been thrown out years ago. In a buyer’s eyes, it can be the most important ‘room’ in the house. You need to stage your backyard and outdoor entertaining areas as beautifully as you would the interior of your home. Green grass, flowers and trimmed trees should be the same standard as your curb-appealed front.
  7. Hiding Problem Issues From the Buyers. I’ve watched too many home sellers pay out big bucks because they didn’t “reveal it all.” Disclose! Disclose! Disclose! Once you have an accepted offer, sellers are required to fill out disclosure statements. If you did renovations to the house without a permit over the years, disclose. If there was a roof leak that damaged the attic two years ago, disclose. If the electrical blows every time you run the dishwasher and the microwave at the same time, disclose. The buyer’s will find out eventually. And if you knowingly have kept things from them, it sets the tone for an ugly and difficult closing. Not to mention that you are setting yourself up for the liability.
  8. Getting Your Ego Involved When Negotiating. Real estate transactions are business deals. Plain and simple. There is no room for ego here. If an offer comes in low, the mistake is to be insulted and not counter back. Always counter back and keep deals in play. Too many sellers take negotiations personally and lose out on creating a win-win deal. Keep your ego out of the equation and put your head back into it. Remember your end goal: getting your house sold and having a smooth and successful closing.

More from Trulia:
Top Reasons Millennials Shouldn’t Buy a Home–Yet
Can Buying an Older Home Ruin Your Marriage?

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

MONEY selling a home

What’s the Best Way to Sell My Home to a Relative?

Q: I want to sell my home to my sister for $1. What’s the cheapest way? Do I need a lawyer? — Stacy C. Bouknight, Glenside, Pa.

A: No, you don’t need a lawyer to unload your home in most states, including Pennsylvania. To transfer the home cheaply, don’t sell it; that would require a title search and insurance to do cleanly, costing several hundred dollars at least. Instead, use what’s known as a quitclaim deed, which transfers your ownership but makes no guarantee the home is unencumbered, says Nolo legal editor Mary Randolph. Fill out the document ($14.99 at nolo .com), have it notarized, and record the transaction with your county land records office.

Have a mortgage? No matter how you turn the home over to your sister, you are still responsible for paying off the note; until you do, your lender has a claim on the house.

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