“The Bright Side” from [email protected] 2/18/14

The Bright Side

It is hard to look at the bright side of a very cold winter which seems to have interrupted the economic recovery and kept most of the nation indoors for much of the winter. Cold winters also increase the price we pay for energy and this winter has been no exception. So where is the bright side? The bright side will be found within the real estate sector. For years the nation’s real estate has been on sale with ridiculously low interest rates and low home prices.

Last year, the sale waned a bit as demand picked up. Homes were still affordable in most areas of the country — especially as compared to renting. However, rates did rise for most of last year and home prices escalated as well. Well, severe winter weather also slows down the pace of home sales. Who wants to go look for a new home when it is covered in snow? Even potential sellers are less likely to list their homes in frigid weather. The tough winter weather has slowed down the increase in home prices and given us a respite from rising rates. At least temporarily.

We emphasize the word temporarily. Winters don’t last forever and when the snow melts there will likely be latent demand. We are not saying that real estate will get smoking hot — but we do know that there will be many who will take advantage of the opportunity that this winter has presented. We can’t make predictions but we do know that the winter will end and people who are suffering from cabin fever will come out and typically look at homes and neighborhoods. If the rush becomes really strong, then the temporary respite in rates and prices will not last long. If it is a more orderly return to normal, the effect may be mitigated somewhat.

 

The National Association of Home Builders’ Remodeling Market Index shows remodeling activity at its highest reading since the first quarter of 2004. The index was at 57 in the fourth quarter of 2013. Any reading above 50 indicates more remodelers report market activity is higher than those who report lower. The index’s future market conditions rose to 58, the highest reading since recording of that measure began in 2005. “Steady existing home sales, historically favorable interest rates for home buyers and rising home equity have combined to release some of the pent-up demand for home remodeling from the past few years,” says NAHB Chief Economist David Crowe. “This quarter’s RMI reading shows that the slow but steady improvement in the remodeling market will continue in 2014.” The National Association of the Remodeling Industry’s fourth quarter Remodeling Business Pulse data also showed an uptick in remodeling activity. The biggest reasons cited for an increase in home remodeling were home owners needing to do projects they had postponed and improving home prices. Source: Realtor Daily News

Investors are flipping houses again, a trend that had become popular during the housing boom but fell off after home prices started dropping. Now, with home prices back on the rise again, many markets are seeing flips on the upswing. Homes that were purchased and then resold within six months accounted for 4.6 percent of all U.S. single-family home sales during 2013, according to RealtyTrac’s fourth-quarter 2013 Home Flipping Report. House flipping was up 16 percent from 2012 and up 114 percent from 2011, the report shows. Rising home prices have helped investors see profits again. The average gross profit on flips was $62,761 in the fourth quarter of 2013, up from $52,746 a year earlier. “Strong home price appreciation in many markets boosted profits for flippers in 2013, despite a shrinking inventory of lower-priced foreclosure homes to purchase,” says Daren Blomquist, vice president at RealtyTrac. In 2013, 21 percent of all homes flipped were purchased out of foreclosure, down from 27 percent in 2012 and 32 percent in 2011, the report shows. But investors are still finding homes to buy at an average discount of 13 percent below market value, the same average discount as 2012, “indicating that investors are finding discounted buying opportunities outside of the public foreclosure process — particularly in those markets with the biggest increases in flipping for the year,” Blomquist says. Source: RealtyTrac

 

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Articles and commentary are provided for general information only and should not be relied on as legal or financial advice. Opinions expressed herein do not necessarily reflect the opinions of Franklin American Mortgage Company.

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