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Sample of Newsletter for week of April 3, 2011, provided by the Hershman Group

This Could Be Your Last Chance

For the past few years, homes have been the most affordable on record. Low rates and low prices make a wonderful combination. However, this wonderful combination may soon be coming to an end. Why do we say this? For one, new home sales are the lowest they have been since the government started keeping records in 1963. While that sounds like bad news, the inventory of new homes for sale is not going up. This inventory is actually one-third of what it was just five years ago. This commentary just appeared in Fortune: "I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today," declares Mike Castleman, CEO of Metrostudy. "The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses." (See Real Estate News below for more on his findings,) Bottom line, we are not building fast enough to accommodate future demand. Even the ominous shadow inventory which has hung over the market is now shrinking. There were 2.0 million units in various stages of "pre-foreclosure" one year ago and 1.8 million units today, according to CoreLogic. This may not seem a huge drop, however, it is the first move downward in several years.

What makes us think that the demand will arise to continue to shrink the shadow inventory? The population of America is rising. We had shrinkage of household formulation during the recession and this masked the continuing rise in population. Tight credit conditions also turned many potential homeowners into renters, though many are renting houses. However, the news that the economy has now produced 400,000 jobs in the past two months is the continuance of a reversal of this trend. As America goes back to work, household formulation will rise again and there will be significant latent demand uncovered. We understand that two months of data does not guarantee the whole trend reverses itself. We lost about eight million jobs during the recession and the workforce grows by 150,000 monthly. So we have a long way to go, but the trend is moving in the right direction. The key is moving from a vicious to a virtuous cycle. More jobs create demand. Demand creates more jobs. And all this will help loosen credit conditions as a stronger economy will help convince banks to have faith in the average American again. You may be hearing the "bad news" regarding home prices right now–but this is a story that may be changing faster than many analysts have envisioned. Even the Federal Reserve Board is taking notice as a member stated this week that the Fed may be raising rates by the end of this year.

"I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today," declares Mike Castleman. "The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall." Castleman is in a unique position to know. As the founder and CEO of a company called Metrostudy, he’s spent more than three decades tracking real-time data on the country’s inventory of new homes. Each quarter he dispatches 500 inspectors to literally drive through 45,000 subdivisions from Baltimore to Sacramento. The inspectors examine 5 million finished lots, one at a time, and record whether they contain a house that’s under construction, one that’s finished and for sale, or a home that’s sold. Metrostudy covers 19 states, or around 65% of the U.S. housing market, including all the ones hardest hit by the crash: Florida, California, Arizona, and Nevada. The company’s client list includes virtually every major homebuilder and bank. The key figures that Metrostudy collects, and that those clients prize, are the number of homes that are vacant and for sale in each city, and the number of months it takes to sell all of them. Together those figures measure inventory — the key metric in determining whether a market has a surplus or a shortage of new housing. Today Castleman is witnessing an extraordinary reversal of the new-home glut that helped sink prices just a few years ago. In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That’s less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago. "If we had anything like normal levels of buying, those houses would sell in 2½ months," says Castleman. "We’d see an incredible shortage. And that’s where we’re heading." Source: Fortune

During the past several years, all the news has been about how much harder it is to purchase a home because lenders have tightened guidelines. However, many have overlooked the fact that the VA Mortgage Program administered by the Department of Veterans Affairs has not tightened at all. The program exists as a benefit to veterans, reservists and active military and also makes Native American Direct Loans. The program is beneficial in helping those eligible to purchase because of several important reasons. The most important of which is that for those who retain full eligibility, there is no down payment required. Most mortgages with 100% financing have gone by the wayside, but not only has VA maintained this benefit, VA mortgages have consistently outperformed national averages. Want to find out more about VA mortgages? Contact us for a free Special Report: VA Helps Veterans Become Homeowners.

Forget what you’ve heard about the incredible shrinking house. New homes are getting bigger, not smaller. And they will continue to grow, if not up then certainly out. Why? Because Americans’ hunger for more space appears insatiable, according to a new survey. The study of people with a proclivity toward buying a new house, conducted by Irvine company John Burns Real Estate Consulting, found that they still want more, not less. And if they can’t get it inside the walls, they’ll take it outside in the form of yard space. The study is significant for several reasons. First, it covered nearly 10,000 people, a huge sample by any standard. By comparison, the typical consumer survey by the National Assn. of Home Builders, or NAHB, covers just 2,200 respondents. Second, respondents to the John Burns study were among 1 million survey recipients who recently registered their email addresses with home builders or land developers, so it is biased toward today’s home shoppers. More important, though, the findings run counter to what most observers have been saying about houses getting smaller. Builders may be downsizing now, as Census Bureau figures indicate, but other signs — not just the Burns survey — indicate that the trend will reverse itself. The typical size of a new house peaked four years ago at 2,520 square feet, according to the census, ending a decades-long march toward larger and larger homes. Since then, the average size has fallen back to 2,377 square feet. But Uncle Sam counts only completed houses. Source: LA Times

Some of the hardest-hit cities in the housing downturn were from vacation home areas, but now these areas are seeing a surge in sales. Condo sales in Hawaii and Florida are inching upward, Housing Predictor reports. For example, in the first two months of 2011, existing condo sales in Oahu, Hawaii, increased nearly 21 percent and the median prices on these units jumped 7 percent higher than more than a year ago. “We’re definitely seeing continual strengthening of the market as more buyers are taking advantage of low prices and low rates to buy second homes and vacation homes,” says Jeff Proster, president of Brookfield Homes in Hawaii. Meanwhile, closed transactions of existing condos in Miami jumped 58 percent higher in February compared to a year ago. “We are even seeing instances in certain neighborhoods with multiple offers above asking price,” says Jack Levine, the Miami Realtors® chairman. Florida has seen improvement in its sales across the state with sales jumping 29 percent on condos and 13 percent for single family homes. However, seven out of 10 sales in the state were either foreclosures or short sales. Half of all sales also were from cash buyers. Source: Housing Predictor