The 800-lbs Gorilla

More on Zillow taking over the real estate world – an excerpt:

Zillow is simultaneously taking on traditional real estate agents, media companies and publishers of housing data — and it’s threatening all of them in the process.

Not a bad tactic when you’re trying to corner a market.

“Zillow saw this opportunity, about five years ago, to fill what we perceived to be a massive void in academia, government and in the media,” says Spencer Rascoff, the company’s 37-year-old chief executive. “Nobody was providing objective, unbiased data and analysis about what was happening in the real estate and mortgage industries. The people that were providing it represented trade associations with agendas and were advancing particular policy prescriptions for their constituents.”

When Rascoff says “trade associations with agendas,” he means the National Association of Realtors, where the mention of the word “Zillow” makes people recoil in distaste (the Association told its membership that it didn’t take part in a White House online forum in August during which Rascoff interviewed the president on housing because Zillow was a “popular housing entertainment website” and the interview was “not a serious public policy discussion”). While many real estate agents have adapted to leverage Zillow and other listings sites to their advantage, Zillow has also given homebuyers lots of information they used to have to get from professionals, which makes it more difficult for agents to add value.

Zillow’s numbers are different. Rather than just measure what’s selling, their team of over a dozen economists, statisticians, and other analysts pulls in local property databases to value all homes, which owners can then update themselves with attributes like a renovation or a new garage. That creates what’s called a “hedonic” index, which is more difficult to compute but also a better reflection of the entire market. Zillow also prides itself on telling people when the market looks bad, like it did before the real estate bubble popped and as it kept sliding.

“You looked at other industry professionals, and they would tell you the bottom’s right around the corner, things are going to get better. And month after month after month, we were the only ones saying home values are bad and they’re going to get worse,” Humphries says. “Our business only works if people trust us to be telling them the unbiased truth. We don’t want to tell them now’s a good time to buy and sell, because we believe that now can’t be a good time to be doing both.”

With the “massive void”, anyone can step up to the microphone and be the expert.  Zillow is doing a great job at filling the void – and good for them.

Where will they go from here?

It wouldn’t take much more for them to try to take out realtors altogether.

Debt-Relief Tax Exemption Expiring Again

Hat tip to daytrip for sending in this article from the alerting us to the expiring The Mortgage Debt Relief Act of 2007, wrapped around the free cheese in the recent JP Morgan settlement:,0,6953798.story#axzz2jD09ygWq

David Dayen spots a new blow for underwater homeowners that thus far has flown under the radar: the coming expiration of the Mortgage Forgiveness Debt Relief Act of 2007, scheduled for Dec. 31.

taxing refi proceedsThe act is a mouthful, but it’s been a crucial factor in helping countless families get out from under bad mortgages. Simply put, the act relieves homeowners from having to pay taxes on any loan forgiveness they receive in a mortgage restructuring. (The maximum exemption is $2 million for a couple.) The measure was originally set to expire last Dec. 31, but it was extended another year by the fiscal cliff deal.

The foreclosure crisis is ebbing, but the relief is still needed. Millions of families are still underwater and facing delinquency, default, and foreclosure. As Dayan notes, those who succeed in obtaining principal reductions will be getting a bill that’s almost certain to be unaffordable.

As an additional irony, the act’s expiration comes just as JPMorgan, one of the banks that contributed massively to the housing crisis, reaches a deal that gives it a tax break on its multibillion-dollar settlement of federal charges related to the disaster.

He suggests folding an extension of the homeowner relief act into the JPMorgan settlement, but the extension looks like something that would have to clear Congress all by its lonesome. What are the chances of that? Congress has a lot to do as the end of the year looms. Somehow the things that aren’t on its agenda are all needed to help the less advantaged of society — food stamp extensions and now mortgage relief. Come New Year’s Day, we’ll be asking once again: Who do the people on Capitol Hill work for?

Same As 25 to 50 Years Ago

Quotes off yesterday’s Case-Shiller Index report:

shill“I define a bubble as a time when people have extravagant expectations, and the expectations are driving home price increases,” said Robert Shiller, Case-Shiller index co-founder and Yale University professor of economics, in an interview with CNBC. “We don’t have the mindset of earlier this century.”

A drop in mortgage rates from the highs of the summer has not helped home sales, as higher home prices keep some buyers sidelined. The Realtors blame a steep decline in affordability, but Shiller disagreed.

“Affordability is still good compared to any time over the last 50 years. Mortgage rates are still around 4½ percent; that’s not high. Homes are still roughly, in real terms, where they were 25 to 50 years ago,” he said.

While inventories are still very low, they have come up about 6 percent from January to August, and that may ease price gains as well.

“With survey evidence pointing to a significant increase in the share of homeowners who view this as a good time to be marketing and selling a home, housing inventory will continue to rise,” noted Paul Diggle at Capital Economics. He is predicting just an 8 percent annual gain in home prices for all of 2013.

The wild card continues to be investors, who made up anywhere from 33 to 45 percent of homebuyers in September, depending on varying surveys. With prices rising and fewer distressed homes on the market, some investors are pulling back on purchases. The question remains, what will they do with the thousands of properties they already own?

“All these institutional investors are going to behave differently than the homeowner of the past,” noted Shiller. “That’s another reason to suspect that there could be a rapid turn down in the housing market, because these investors are not going to sit tight when home prices start falling. If they think they’re going to continue falling, they’ll get out.”

Shiller said he sees a tilt in public demand away from owner-occupied housing toward rental housing, even as the economy recovers. Homeownership has fallen from a high of 69.2 percent in 2004 to 65 percent in the second quarter of this year, according to the U.S. Census. He called it “good and natural” that tastes have changed.

Rates Looking For Bad News

Rates have come down nicely, and may break into the 3% range again, which could ignite the market.  It may already be happening – I ran into four different bidding wars in the last week!

Mortgage rates continued flying their recent holding pattern just over 4 percent.  Most lenders’ rate sheets were essentially unchanged compared to yesterday’s latest.  Additionally, we never saw enough bond market movement during the course of the day to justify any mid-day changes.  The most prevalent Conforming rate (at zero points) has been pinned to 4.125% with very little change in associated closing costs for a week now.

Because most lenders adjust rates in 1/8th (0.125%) increments, the next time the best-execution quote moves lower, 30yr fixed rates will be back at 4.0%.  Some lenders are offering that now, but it’s not the norm, and may involve additional closing costs.

So is it possible that we’ll see a more broad-based move down into the high 3’s?  In a word, yes, but caveats apply.  The concept of a “holding pattern” is carefully chosen because rates are indeed circling the runway, waiting for permission to land.

That permission can only be granted by economic developments that are “negative enough.”  Specifically, markets would need to see more evidence that the labor market is weak enough to unequivocally delay the Fed’s timeline for reducing its bond buying program–one major factor in lower rates overall.

The surest bets when it comes to such data are the once-a-month Employment Situation Reports, such as last Tuesday’s.  Due to shutdown rescheduling, the next report is coming up next Friday!  Even tomorrow, we’ll get several pieces of data that will help decide the fate of the “circling plane,” including the ADP Employment numbers which attempt to forecast next Friday’s numbers.  The FOMC releases a policy announcement in the afternoon, and although traders agree we’re not likely to see any policy change that hurts rates, it could still make for an afternoon where rates are actually higher or lower than the past afternoons.

SD Case-Shiller Index August ’13

The pace of the non-seasonally-adjusted SD index is still less-torrid:

March ’13
April ’13
May ’13
June ’13
July ’13
August ’13

Slow deceleration is good?

Land Is The Basis


For anyone wanting to know if the U.S. housing market is turning into a new, speculative bubble, a good and overlooked way to tell is the price of land. A real estate professor at the University of Wisconsin has done just that—and concluded that there is no evidence of a bubble on a national level. Not yet, anyway.

“Housing might be undervalued today,” says Morris Davis, a professor in the Department of Real Estate and Urban Land Economics at the Wisconsin School of Business in Madison.Wisc.

Twice a year, Davis looks at prices that houses are selling for and then strips out the cost of the structures, leaving the value of the land they are built on as “residual.” Land prices fluctuate much more than overall sales prices because the cost of structures doesn’t change much from year to year.

“Land is telling you what’s going on with demand,” Davis says.

Phoenix is one metro area whose prices have rebounded sharply, and bidding wars are back in the headlines.

Phoenix doesn’t look so scary by Davis’s metric. Land’s share of house value was 65 percent in 2006 and then plummeted to 5 percent in 2011. It has climbed steeply since, but it was still just 26 percent in the first quarter of 2013, according to Davis’s calculations. He won’t have his figures for the third quarter of 2013 until next February or so.

A complete set of data for 46 metro areas and all 50 states is posted on the website of the Lincoln Institute of Land Policy, which helps cover the cost of updating the data.

John Burns Real Estate Consulting of Irvine, Calif., sees rapid increases in land prices in many markets. It tracks empty lots in subdivisions that are ready for building. Its Finished Lot Value Index, an average for 27 markets, fell 46 percent from its peak to its 2009 low but has rising briskly since and needs only a 22 percent further increase to match its all-time high.

Bakersfield, Calif., and Phoenix lots are up roughly 200 percent from their troughs, the firm says. At the other extreme, prepared lots in Chicago are up only 7 percent from their bottom.

Will Frank, a senior finance manager at John Burns Real Estate Consulting, said today that by John Burns’ measure, Phoenix is starting to look a little pricey, along with Dallas and Orlando. The land in those metro areas isn’t a bubble, but prices should start to “plateau” in the next year or so, Frank says. “We still have Las Vegas going up a while,’ he says.

Land is the right thing to pay attention to when sniffing for speculation. “There’s only one difference between a car and a house, and that’s the land,” says Wisconsin’s Davis. “We all know how cars work. Eventually they depreciate and they’re worthless. Housing is the same way. It depreciates, and eventually it’s worthless and it needs to be torn down. Only hope is that the land appreciates in value. It’s really the only piece of a house that can appreciates.”

If you’re counting on home prices to rise, then—consciously or not—you’re betting on land.

Hot September

This year we have had a full-fledged frenzy, with both sales and pricing on the rise.  Is it still a frenzy if prices increase, but sales drop off?

Because the sales counts look like they will be feeling the usual seasonal decline this year, which didn’t happen last year. The late-2012 push (during the election!) helped to drive a robust 2013.

If the frenzy does get whipped up again next year, it will be the lower-end buyers leading the charge, because they are really feeling it. Today there are only 104 NSDCC houses for sale under $800,000, when 67 closed last month!

NSDCC Detached-Home Sales, September

Sept Sales & Avg $/sf

In the lower range it looks like the sales counts are off – but it’s only because prices rose so fast that sales are jumping into the higher ranges.

The over-$800,000 sales increased by 40% year-over-year!

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