Did You Miss the Best Real Estate Buying Bonanza in Decades?

Has your best chance at getting a great deal on your dream home or investment property passed you by?

The answer is no. But you certainly did miss the bottom — the intersection of low home prices and rock-bottom mortgage rates.
But it’s still a bonanza out there for prudent buyers! Real estate is still incredibly low priced, mortgage rates are still reasonably low and great wealth still can be earned from owning quality properties for the long term.
Long-term ownership
The most likely scenario where a real estate buyer increases his or her wealth — and “increasing wealth” is the reason most people desire to own real estate — is by holding property for the long term. When you own long term, you pay down your mortgage along the way, the property’s value hopefully will increase over the years and you skip the exorbitant transaction costs that go along with buying and selling real estate over and over again. So don’t buy a home or investment property unless you are virtually positive you will own it for years. You generally have to own a property for around 7 years to start earning any equity.
And keep this in mind: If you have that long-term ownership goal, the recent uptick in property prices shouldn’t be big a deal for you, because in 10, 15 or 20 years, the values should be much higher. In fact, in 15 years you’ll hardly remember what you paid today; you’ll just be bragging about how it was the best investment you ever made.
Buy good quality real estate
Beware: You can’t just buy any property and expect it will add wealth to your financial picture. You have to buy nice properties that are affordable to you — no get-rich quick schemes.
Many properties are wealth-draining, not wealth building. It’s usually the ones that sound like incredible deals, but they end up being too good to be true. A few types of properties that usually diminish your wealth are fixer-uppers, fancy prize properties, second homes, vacation rentals, land, properties in mismanaged homeowners associations, rent-to-own deals, and properties in bad areas. Most of those are going to be wealth-destroying for a variety of reasons.
To sum it up
The bottom has passed — a perfect storm of low prices and low interest rates is gone, gone, gone — but it’s still a buying bonanza out there for savvy buyers.
If you are buying a personal residence, buy a home you can afford. If you are buying rental properties, buy properties that pay for themselves.
Interest rates and home prices are still very reasonable — as long as you have a long-term ownership perspective.
Most importantly, don’t worry about what the news says and all the negative or positive commentary on the airwaves. Buy a great property for yourself, and you will hopefully enjoy the rewards down the road.

Builders Raising Prices, Limiting Supply

Those looking to buy new homes will likely start to see price hikes, and possibly a smaller selection. Many of the nation’s builders say they’ve had to increase prices due to the rising costs of land, labour, and materials.

For example, Pulte’s sale price, on average, has increased 10 % to $287,000 in the first quarter of this year. Meanwhile, the average existing home price was $233,200 in March, according to the National Association of Realtors.
“Builders are feeling pinched by rising costs of key building components which is causing home construction costs to rise at a faster pace than appraised values,” says David Crowe, chief economist of the National Association Home Builders.
Some builders are limiting sales in order to keep prices higher.
“We are pricing our homes and limiting the number of lots we’re releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities,” Meritage CEO Steven J. Hilton wrote in the company’s quarterly earnings report recently.

Lennar’s New-Home Orders Soar 27%

The nation’s No. 3 home builder is reporting stronger-than-expected gains in revenue and home sales during the spring selling season.

With rising home prices, Lennar Corp. saw a 53 % increase in second-quarter revenue. The company also reported new-home orders climbing 27 %, signalling a “solid housing recovery,” says Chief Executive Stuart Miller.

Miller says that buyer demand has continued to outpace supply, which has allowed Lennar to increase its selling price 13 % and average $283,000 during the second quarter.

Lennar has been actively purchasing land to try to meet increased demand. The company’s backlog of ordered homes that have not yet been completed rose 55 % in the second quarter.

In January, the company announced it would also be entering into the apartment rental business to take advantage of the booming rental market as well.
Lennar’s rival Toll Brothers, a luxury home builder, reported in May that its second-quarter profit soared 46 %, due to higher demand among buyers and higher selling prices.

New Home Sales Rise

New-home sales rose 1.5 % in March, and economists predict more increases ahead as housing likely remains a consistent driver of economic growth this year, The Associated Press reports.

“With increasing signs of a softer U.S. economy springing up in the spring, we can take comfort in the resilience of the housing recovery,” Jennifer Lee, senior economist at BMO Capital Markets, told The Associated Press. Record low mortgage rates and steady job creation are attributed to helping lifting home sales.

The Commerce Department reported Tuesday that sales of new homes reached a seasonally adjusted annual pace of 417,000 in March. The pace marks an 18.5 % gain compared to last year, but the numbers are still far below the 700,000 pace that most economists consider healthy for the sector.

“At this point, we are about halfway back to what would be considered a ‘normal’ level of sales activity as challenges related to supplies of credit, building materials, lots, and labor are slowing the pace at which builders can build and sell new homes,” says David Crowe, chief economist for the National Association of Home Builders.

Regionally, new-home sales rose the most in the Northeast by 20.6 % in March, followed by a 19.4 % gain in the South. Sales dropped 20.9 % in the West and fell by 12.1 % in Midwest, the Commerce Department reported.

Inventories of new homes remain tight, but did rise 2 % in March, marking a second consecutive monthly gain. Inventories are at about a 4.4 month supply at the current sales pace.

The tight inventories are causing home prices to rise. The median price of a new-home increased to $247,000 in March — 3 % higher than a year ago.
The low inventories are spurring more construction of homes, with homebuilders having started work on more than 1 million new homes and apartments in March.

Orlando home prices up 37% since start of 2012

Home prices in the core Orlando market during May were up 23 percent from a year ago and 3.1 percent from a month earlier, a new report shows. The median sales price for the month was $148,000 – up from $108,000 at the beginning of last year.

Orlando-area home-resale prices have risen more in the past 12 months than they would typically increase during five years of steady appreciation.
Existing-home prices in the core Orlando market during May hit a median of $148,000 – up 23 percent from a year ago and up 3.1 percent from just a month earlier, according to a report released Monday by the Orlando Regional Realtors Association. Perhaps more remarkably, prices have increased 37 percent since the start of last year.
“I can tell you from the listings I am putting up for sale, they are not lasting more than two to four days on the market – and people are willing to pay more than the asking price,” she said.

Even though homeowners may celebrate the robust price growth, which comes on the heels of a five-year housing bust, the run-up in price since January 2012 raises questions about whether the local market is headed for another letdown. Some experts cautioned Monday that prices will soften as banks release more foreclosure properties onto the market.
One indication that house prices may continue to appreciate, though, is that they are still far below where they would have been if the housing bubble had never occurred and values had instead ticked up at their long-term average rate of 3 percent a year, said Stan Smith, a finance professor at the University of Central Florida.
“Until we get up to around 2004 price levels, I’m not sure these increases are a problem,” said Smith, who studies housing appreciation. “We are probably at about 77 percent of where we would be if we had never had a bubble and it appreciated at 3 percent a year.”

One of the main factors driving the fast-escalating prices is simply the type of house that has been selling. For years, distress properties defined the market, with foreclosures and short sales accounting for more than half of all sales in the Orlando Realtors’ core market, which consists mostly of Orange and Seminole counties.

But by May, the market had shifted so much that distress sales accounted for only 40 percent of the month’s closings. That decline in sales of “underwater” homes meant that those lower-priced properties were less of a drag on the area’s median sales price.

“The relative good news about inventory is that there was a 10 percent increase in the number of new listings that came on the market in May, the majority – 65 percent – of which were ‘normal’ sales,” said Steve Merchant, chairman of the Orlando Regional Realtor Association and the broker-owner of Global Realty International Inc. in Orlando.

The faster the market works through its supply of distress properties, the sooner prices overall will reflect the value of conventional properties. Last month, the median price of the conventional deals was $180,000 – more than $30,000 higher than the median paid for the underwater houses, which sold for a discount.

According to Smith, the gap between current prices being paid for conventional homes and estimates of where those prices would have been had never been a bubble remains wide – a difference of about $53,000, according to his calculations.

May’s price increases did little to deter sales. Members of the Orlando association closed on 2,855 homes last month, an increase of 15.6 percent from a year earlier and 3.1 percent from a month earlier. Single-family home sales rose 17 percent, while condos sales increased 8 percent compared with May 2012. As a result, the supply of homes available for purchase was enough to last only 2.55 months at the current pace of sales – less than half what is considered healthy for a market. A month earlier, the area had enough listings to last 2.6 months.

May’s home purchases closed in an average of 68 days – the smallest sales window since August 2006, when the housing market was about at its peak. The homes that sold in April had been on the market an average of 76 days. In contrast, during the Great Recession, in March 2008, Orlando-area houses had sat on the market for an average of 128 days before selling.

The current fast-paced sales environment and slim supply suggest there is room for banks to add more of the region’s many foreclosed properties to the market without tamping down prices, Smith and others said. They have also cautioned, however, that this “shadow inventory” – houses headed to foreclosure or already repossessed by the banks – could soften prices if properties are dumped onto the market too quickly.