The S & P Case Shiller numbers came out today, which reflect August numbers. This is a repeat sales index and it takes time to process the numbers. In a couple places, including our monthly real estate reports, we noted the flattening occuring in the median indices. Also, Radar Logic's index for Las Vegas demonstrated an increase in prices.

We won't say that yes, we are at a bottom until several indicators demonstrate that. One of those indicators is the Case-Shiller index. The other indicators include notices of default and trustee sales, which remain elevated. However, as we have stated in other posts, you don't need to time the bottom exactly if you frame your purchase decision within the bounds of well informed risk-reward parameters. Further, if you know the market well, you can buy smartly and find real estate that is below the market. You can think of this as built-in upside in the short-term and a buffer against a possible decline in the overall market in the longer-run.

In the Case-Shiller exhibit, you can see the index arcing towards a flattening. Additionally, the index is far, far below its long-run trend. That long-run trend does not incorporate all of the appreciation during the 2002-03 period, in which housing did participate in some strong employment driven growth. This period was slightly uncommon, so we leave it out. Nevertheless, strong fundamentals were in palce ahead of the boom and that was part of why the boom took place in Las Vegas. Investors responded to the strong employment and population growth. What the initial investors did made sense. The ones that followed were part of the herd mentallity.

We have given all of the bubble gains back. Today we sit below long-run fundamental values and part of this is due to knowledge of dark homes not yet on the market, as well as weak employment. For those working, you can buy (according to the Case-Shiller Index) a home at early 2000 values. For a lot of folks, that served to shrink their costs substantially. There is a lot of opportunity in todays market and after a strange decade, some things do make sense, like having a mortgage at a fraction of your income.

Source: Standard & Poors.

What to expect when you’re expecting to purchase a home in the current “Buyers Market” when applying for a loan…

A play on a book title but an appropriate subject to discuss… the first word(s) that comes to mind is extra scrutiny if you are applying for a mortgage.  Gone are the days of “I have good credit rating and I have a million dollars in the bank I want to state my income.  All lenders are turning a critical eye to the haves as well as the have not’s and will continue to do so for the foreseeable future.

To shed a positive light on an otherwise gloomy statement is that mortgage applications ticked up in the 3rd quarter as rates dipped again.  Rates have slowly risen and applications have trickled off somewhat but there is still a healthy application rate as the looming deadline for the First Time Homebuyer’s tax credit approaches.

Investors cannot be left out of the equation and are making up a lion share of purchases below the $100,000 mark as they are able to purchase with cash and close quickly.  With lending guidelines and turn times for loans increasing due to new legislation such as: Home Valuation Code of Conduct – lengthening the time it takes for appraisals being performed, “3/7/3” rule regarding disclosures and effectively ruling out a quick close if financing is required and lastly on the State level legislation regarding the “Nevada Good Funds” rule that puts holds of up to 10 days on certified funds physically brought to title companies at the time of close, you can see why sellers are often opting for cash buyers who are only slightly impacted and can close quickly in this price range.

Historically low interest rates are also headed to higher ground as the Fed begins to wind down their purchases of Mortgage Backed Securities and it will be left to the open market again to dictate interest rates.  What that equates to is that the insulation from the Stock Market fluctuations will also come to an end because in a typical market (one without the assistance of the Fed buying the MBS’) stocks and bonds fight for the same dollar.  So as the stock market goes the inverse happens to the bond market – a run up in the stock market means a rush of money out of the bond market and a byproduct of that money flow is higher interest rates.

So now you ask- I am looking to buy what can I do to position myself as a strong buyer?  -Get pre-approved not pre-qualified the difference between the two is your documentation has been reviewed and the other is that you have simply had a conversation discussing your situation. 
-Meet your lender and provide them all of your income and asset information so that the lender can write a stronger approval.
-Expect to re-submit up-to-date pay stubs and bank statements more than once throughout the process to show that you are still qualified. 
-DO NOT MAKE ANY NEW LARGE TICKET PURCHASES during the process on your way to closing.  Wait to buy your furniture and any appliances you may be eyeing until AFTER your Real Estate Agent slides you your keys.

There is a lot to digest here but the take away of this article is to get in the game NOW.  If you are considering buying now is a great time to go and get pre approved. PHH Mortgage charges nothing for you to get pre-approved and you’ll be surprised how easy it is to accomplish.  Investors are not the only people buying homes there are plenty of people just like getting in the game and winning some great properties at great prices with great mortgage rates.  With all of the changes that are coming this may be the best chance you have to realize the American Dream of home ownership!

Dave Reichert CMP

PHH Mortgage

John Krainer, at the San Fransisco Fed, along with co-author Elizebeth Laderman have released an interesting working paper on on the relative loan perfomance of privately securetized loans vs. those securitized by the GSE's. This article can be a technical bear to read but might be worth browsing if you like math and econometrics.

 Click Here.

Recently a condo in Hong Kong sold for $57 million (near $9,200/sq.ft). This is pretty crazy. In the the Global Property Guide,  Hong Kong ranked 5th in the worlds most expensive property markets, right behind Monte Carlo, Moscow, London and Tokyo. New York City ranked 7th.

We don't have anything near those prices in Las Vegas but there are some very impressive properties on the market. CityCenter will represent the newest and coolest while Park Towers has a listing above $10 million. Turnberry Place also has several units listed for sale above $10 million. One Queensridge Place, also has amazing units available, some of them very sizeable. We track these segements pretty closely so if you need any info on the high-rise market, send an email to info@cbprds.com.

Check out the Hong Kong article here.

A report by the Wall Street Journal notes concern by some Federal Reserve representatives that banks will be slow to recognize the size of the loss that will ultimately be realized in commercial real estate, similar to what happened in residential.

The problem with a lot of CRE is that it is stuck. Banks have to increase their capital requirements to offset these losses. However, as the WSJ article presents, an "extend and pretend" policy has often been implemented where banks temporarily patch up their balance sheets by extending loans that have come due already but were unpaid. As we have experienced in residential, this philosophy is just forestalling the inevitable conclusion where prices reset to levels that make sense for investors and owner-users. As we have noted in previous blogs, the prices that CRE is being shopped at does not yet make sense.

Luckily for us, we do have the experience in the residential market of how to liquidate these assets. The commercial has more rigidities, however, and that may slow things down. In the absense of a sharp uptick in demand for commercial space, we need to see more properties trade at lower than current asking prices before we can say there is a decently functioning market for CRE.

 WSJ article: Click Here.

Home sales continued to be strong in September. While not all of the numbers are finalized yet, from what has already posted we see single family sales nearly match August. We have had over 3,000 single family re-sales per month since April and this has served to keep marketed inventories low. Whether or not banks will place greater inventory on the market is still a wildcard.

A great number of homes are tied up with contingent offers and pending sales are still elevated, indicating that sales should be quite good through the remainder of the year. We do not know how many of these sales are effected by the first-time buyer tax credit so some demand may have been moved forward. The ratio of pending to active homes remains stable, hovering between 14% and 15% for the past four months.

 Source: Mlxchange, Coldwell Banker Premier Realty.