My network of buying agents across France has seen a dramatic increase in enquiries from the USA over the last 12 months and I thought it would be good to get the views of an expert from "across the pond".
Jeff Lichtenstein specialises in the top end of the market including (close to my heart) golf properties. Here's his take on the market:
The United States housing markets is getting better, but hold the champagne if you think the market is going back to where it was. It’s kind of like a student who always receives failing grades getting a D+ and being all excited. However, it’s still a D+. Although that D+ does feel better than an F. Some factors to take under consideration…
· United States unemployment has decreased to 8.2% from a high of over 10% in 2009. However, many have dropped out of the labor market and aren’t counted as unemployed in these statistics.
· Interest Rates are at historic lows. While it is not nearly as easy to get a loan, loans are taking place and FHA loans for example are work-arounds for home purchasers. I just did a transaction where the buyer received a 96.5% loan utilizing FHA!
· March retail sales were 2% higher than they were the period before. A bit better economy and a hair better housing market helps spending and this trickles to all areas of the economy.
· Permits for new construction were 8% higher than the previous quarter and 18 percent higher than 2011, first quarter.
· HUD reported that total delinquencies for all mortgage loans were at 7.6% in the fourth quarter of 2011. Subprime loans are at 20.8%
· Total homeowner ownership in the United States is down 1.5% from a year ago at 65.4%. Watch for this to go down further. There is a giant backlog of foreclosures and short sales. Bloomberg reports that distressed sales are made up 35% of the total market sales. The homeowners who sell these distressed properties most likely have their credit destroyed and enter the rental market.
The United States is still a regional market. My market in South Florida was hit the hardest by any in the country. For example, Florida is at 9.4% unemployment and our backlog of foreclosures is by far the highest in the country at 3 years! Below is a little more information on what is happening in Florida.
The Florida real estate market was hit the hardest from the housing bubble crash in 2006. Finally, that market is starting to come back. Here's why:
1. Overall Market
The market is improving as of spring 2012 in Palm Beach County, Florida. We are seeing a slight increase in supply because of economic conditions, but a bigger jump in sales because of a 6-year slow drip of investment and must-sell inventory that has dried up.
2. Prices: This Year versus Last
In January of 2012 the average price was $296,000. The average sold price in February 2012 was $318,000. However, the average sold price in February of 2011 was $348,000, so prices are lower today than they were a year ago at this time.
3. Sales Volume
February 2012 home sales are up compared to last month. There were 797 sales in February 2012 versus 749 sales in January 2012. 752 sales took place in February 2011, so more sales are happening now than last year at this time as well.
4. Who is Purchasing?
Snowbirds, some first timers, and downsizers are purchasing. We are also seeing a trend of people selling their northern and small Florida home and then purchasing a medium-sized permanent Florida home. A few foreign buyers, but mostly from Canada. There are not as many Canadian purchasers as the last few years because many Canadians purchased from 2009-2011. Not much activity from Europe because their economy is weak.
5. Distressed properties:
163 short sales sold in February of 2012, which is more than the 128 that sold in February of 2011. There are currently 2621 short sales out of the 9593 homes available on the market. The Palm Beach County MLS has never kept exact track of foreclosures. Some lenders had their agents hide this for fear that agents would not show the property. However, that has changed in the past month, and going forward those properties must be marked in Palm Beach County MLS. Overall it has been reported that Florida, which takes a whopping 3-year time-span to foreclose on the average property, is starting to see that number go down. Banks are foreclosing faster as the overall inventory has diminished.
6. Can Buyers still get loans?
The people who want loans are not having trouble getting them. There is much more verification. I haven’t had problems myself with buyers finding financing. The problem lies more within the appraisal process of homes not appraising. Many times it is because the appraisal is not done well. Some of the appraisers hired are from out of the area, traveling from Miami or Orlando and don’t know the property well.
For the past six years, economists and politicians have argued about what to do with the housing market. We’ve heard all sorts of solutions, from bulldozing homes to giving huge reductions in principal to homeowners upside down on their mortgages. President Obama blamed President Bush, Republicans blamed Barney Frank, and everyone blamed Wall Street. Quietly, though, as we start 2012 in Palm Beach County, overall inventory is significantly down. There were 9,593 homes available in February of 2012 versus 10,883 in 2011, almost a 12% drop in inventory. I attribute the drop to a change in supply, not so much to a surge in demand. As evidenced by the amount of sales staying the same, there has been a slow drop in supply since 2006. In 2006 we had a perfect storm of excess inventory:
1) Investor purchases of new construction
2) Builder speculation homes
3) Over-confident Sellers who purchased first without selling
4) Sellers who were in a must-sell situation
While we still have many Sellers in the 4th category of ‘Must Sell’, due to a loss of income or loss of job, 80-90% of the first three categories that I outlined have sold since 2006.
Picture a slow dripping faucet as a sale. One drip doesn’t amount to much, but drips from 2006 to 2012 add up to an overflowing bathtub! That is what has happened in real estate over the last 6 years, and 2012 is the year the bathtub overflowed. The investor, builder, and over-confident Seller who got stuck with their good-looking homes have taken their 35% loss and moved on. These Sellers have gone though denial, trying to wait it out by renting their home, got angry at Wall Street, switched to 4 different real estate agents before they stopped blaming everyone and accepted reality. Finally, they have sold and moved on.
Now we are left with a just a bad economy and a lousy market. This market is stronger, though, because the one-time Investor/Builder Spec/Over-Confident inventory has dissipated. I’ve personally had 2 Buyers lose out on homes ranging from $500,000 to $4,000,000 in the past two weeks. Buyers are in disbelief thinking they can wait forever only to lose out. Pending sales for March and April are going to be way up and buyers need to recognize the bottom is here, not because the economy is strong, but because there are no more investors investing, spec buildings being built, and over-confident Sellers buying first without selling first.
The turnaround in housing has begun because of the natural laws of Supply & Demand. In 2007, I explained to my 7-year-old son Sam, to picture a town with 100 homes and 100 people. If one person moves to the town each year, then one new home needs to be built. What happened in housing is that builders constructed 7 homes in one year, giving the town an excess of 6 extra homes. After a 6-year-long wait with no homes being built we have hit equilibrium. We now have 107 homes and 107 homeowners. Supply and demand are smoothing out. Watch for the Republicans and Democrats to fight over who gets credit. Sam, now 13, can tell you that the credit really goes to the free market principals of supply and demand.
Jeff Lichtenstein specializes in luxury real estate in Juno Beach Condos and Egret Landing Jupiter Homes in South Florida.
His website is at www.JeffRealty.com