Rise of the Rentals

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48 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ANALYTICS The LaTesT The LaTesT american Feelings Mixed on Housing's Present, Future Indicators bode well for the spring season, but views are foggier a year out. F annie Mae released its most recent National Housing Survey, reveal- ing a slight softening in the housing recovery as monthly indicators remain volatile. According to results from the March survey, fewer than half of consumers polled expect home prices to continue rising over the next 12 months, continuing a trend of uncertainty that started as price gains began to slow noticeably last fall. Even among those expecting more increases, the average yearly change predicted is 2.7 percent, down half a percentage point from February. "The housing recovery contin- ues to proceed in fits and starts," said Doug Duncan, SVP and chief economist at Fannie Mae. "Rising mortgage rates and a lack of supply have dampened hous- ing market momentum." According to Fannie, 54 percent of consumers said they expect rates to keep rising over the next year, while only 3 percent—an all-time survey low—anticipate declines. Looking at more immediate indicators, responses were more optimistic: More consumers now believe it is a good time to either buy or sell a home compared to February, and the share of those who believe it would be easy to get a mortgage today climbed back up to 52 percent, matching a survey high first recorded in January. American's at- titudes regarding their own finances also improved, albeit slightly. While the share of those expecting their finances to improve during the next 12 months dropped somewhat, the share expecting their situ- ations to worsen fell more substantially to 12 percent. Meanwhile, a re- cord 40 percent said their personal financial situation has improved over the past year. Still, only one-third of those sur- veyed said the economy is on the right track—continuing a declining trend—and Duncan said those who still harbor doubts about housing "tend to point to economic condi- tions as the primary issue." Given the current improving climate, that pessimism may not last, he adds. "Looking forward, we expect to see a pickup in economic growth later in the year, and this may boost the con- fidence of prospective buyers and sellers," Duncan said. investor interest Wanes Investors find fewer reasons to stay in the market as discounted homes disappear. i nvestment-home sales fell 8.5 percent to an estimated 1.1 million in 2013, down from 1.21 million in 2012. NAR chief economist Lawrence Yun expected an improvement in the vacation home market. "Growth in the equity markets has greatly benefited high net-worth households, thereby providing the wherewithal and confidence to purchase recreational property," he said. "However, vacation-home sales are still about one-third below the peak activity seen in 2006." Vacation-home sales accounted for 13 percent of all transactions last year, their highest share of sales since 2006. Investment sales fell 20 percent in 2013 from 24 percent in 2012. Yun says the retreat in invest- ment activity is understandable. "Investment buyers slowed their purchasing in 2013 because prices were rising quickly along with a declining availability of discount- ed foreclosures over the course of the year," he said. He notes that home prices had sharply over corrected in 2011 and 2012, leading many investors to purchase homes cheaply to turn into rental properties. As market conditions return to nor- mal, investors must now evaluate their purchases more carefully— and judiciously. The report by NAR found, "The median investment-home price was $130,000 in 2013, up 13 percent from $115,000 in 2012, while the median vacation-home price was $168,700, up 12.5 percent from $150,000 in 2012." All-cash purchases remained sizable in the investment- and vacation-home market: Forty-six percent of investment buyers paid cash in 2013, as well as 38 percent of vacation-home buyers. Foreclosures also served as a verdant market for investors. Forty-seven percent of invest- ment homes purchased in 2013 were distressed homes. Forty-two percent of vacation homes were distressed homes. "The housing recovery continues to proceed in fits and starts." — Doug Duncan, Fannie Mae

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