Every week plenty of data on national real estate is released. Watched by analysts closely are the mortgage applications and monthly changes of the Case-Shiller Home Price index. 'On fire' is the only way to describe the housing data over the past 18 months, registering double digit price gains across regions.
In reality though, most folks use one site to check their home value – Zillow (www.zillow.com). For those that may be unaware, Zillow is a website that has everything one needs to know about homes, real estate, and mortgages. Its powerful data also generates the' Zestimate' for every home, using the latest sales data and multiple models for scoring to produce estimates within 8.2% of actual home sales. It has valuations for 115 million homes with 1.2 million unique models developed daily and processes 4 terabytes of data (which is a lot, apparently).
Zillow also runs a really nice blog, and as one might guess with the vast amount of statistical data housed on its drives – it publishes plenty of interesting data on the industry, even an advanced estimate of where it sees the Case-Shiller for the next month. Included within a September entry was a great shot of its expected path of home prices over the next five years. After declining from the recent hot pace, Zillow expects 2-3% annual home appreciation, in line with the long-term trend for housing before the bubble.
One interesting and profitable way institutions and private equity investors participated in the housing recovery was buying foreclosed homes. Going in with deep pockets and closing by the thousands, firms swooped in for bargain deals, but stories like the one from Reuters disclosing that many are exiting the trade with large portfolio gains from California, Florida, and other bounce-back areas.
Still real estate is a local game, with each market driven by demographic and economic changes. While interest rates and regulatory changes at Fannie Mae and Freddie Mac will impact prices in the medium term, there is a key factor that cannot be changed: demographics. Matt King, Citi's Head of Credit Strategy wrote about the following:
"In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young)."
Source: Citi, Matt King
"In the past we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children's generation. Unfortunately, that doesn't work so well when there start to be more pensioners than workers."
The rise in interest rates is a headwind to the housing recovery. Mortgage applications are up by 7 percent over the last year but down from a few months ago as the average 30-year mortgage rose from 3.4% to 4.4%. Refinancing requests are down 70% since early May according to the Mortgage Bankers Association. This led to thousands of layoffs at mortgage units from Citigroup, Wells Fargo, and others.
Consumers watching the 'Zestimate' on their homes increase could actually be a good thing for the overall economy. If this credit cycle follows the normal playbook, next year could see people finding a familiar friend – HELOCs (home equity lines of credit) – providing a buoy to pocketbooks. Debt service payments for households are at the lowest level in 33 years at 9.9%.
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