156,000 new jobs added in December – While 156,000 new jobs was slightly below the number analysts expected it marked a record 75 straight months of job gains. For 2016 the economy added over 2 million jobs. The unemployment rate ticked up from 4.6% in November to 4.7% in December as more workers began a job search. The unemployment rate has dropped more than 50% from October 2009 when the unemployment rate was 10%. Wages were the bright spot of the report. Although job growth has been steady over the last 75 months wages which usually move up as the unemployment rate drops have shown disappointing growth. In December wages were 2.9% higher than last December. The best year over year wage growth since 2009.
2016 U.S. auto sales have record breaking year in 2016 – Unexpectedly strong auto sales in December helped the auto industry break last year’s record. 2016 saw 17.55 million new vehicles sold, beating 2015’s record of 17.47 million vehicles.
U.S. Treasury Bond yields – The 10-year U.S. Treasury Bond closed the week yielding 2.42%, down from 2.45% last Friday. The 30-year Treasury Bond yield closed the week at 3.00%, down from 3.08% last week. Mortgage rates follow bond yields, so we watch treasury bonds closely.
Mortgage rates slightly lower this week – The Freddie Mac Primary Mortgage Survey released on January 5, 2017 showed that average mortgage rates from lenders surveyed for the most popular mortgage products were as follows: The 30-year fixed rate average was 4.20%. The 15-year fixed average rate was 3.44%. The 5/1 ARM average rate was 3.33%.
U.S. housing – The total value of the U.S. housing stock grew to a record $29.6 trillion in 2016, an increase of nearly 6% and $1.6 trillion over the previous year, according to an analysis of the 35 largest metro areas. Los Angeles is America’s most valuable housing market – When it comes to the value of all the real estate in America’s biggest cities, New York and Los Angeles are usually first and second on the list, often switching places. A year-end market value report concludes that Greater Los Angeles is the U.S. champion. The total value of all homes is $2.5 trillion, a 6.4% change from last year, or a gain of $154 billion. Greater New York’s real estate value is pegged at slightly less than $2.4 trillion.
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The affordability index measures how difficult it is for would-be homebuyers to finance the purchase. It expresses the degree to which a typical family can afford to repay a mortgage on a typical home. The main parameters involved are household income, home prices, mortgage rates.
The value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite housing affordability index (COMPHAI) of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan. The higher the index, the more affordable the homes.
The graph above shows that affordability improved over the long term. A closer look reveals the deterioration at the end of the real estate bubble, then a spectacular improvement when home prices faltered and interest rates were taken to zero by the FED.
Since 2012 affordability is decreasing, due to the recovery of prices, but also to the weakness in wages progression and the narrowing of the middle class. Now that interest rates are on their path to normality and mortgages are more expensive, one can expect further losses in affordability in the coming months. For the next upturn in the index, we probably have to wait for a setback in home prices. From now to then, the trend in affordability should be an additional fuel to the rental market.
In an urban area, development occurs like in a dominos game. New developments and investments come at the fringes of the already developed or re-developed areas. Improvement and modernization, under demographical and economical pressures, expand according an oil patch pattern, that is often focused along the main transportation infrastructures. Real estate professionals call this pattern a growth path: the expanding track that is receiving investments and where property values are increasing.
Investors strive to anticipate the itinerary of the growth path, in order to buy at a cheaper price properties that will be expensive once the “oil patch” arrives. Anticipation is rewarding since the investor pockets the risk premium inherent to uncertainty.
Today we can spot a growth path in the Coconut Grove real estate market in Miami. This exquisite, ideally located neighborhood has stayed away, for some time, from large scale developments. A catalyst for a change has been the “Grove at Grand Bay” project and its ultra-luxury condos overlooking the Bay. Next to it, close to the water, Grove Park and the commercial development Grove Bay confirmed the process.
It is easy to see the path of investment and renovation going inland since a couple of years. The famous Coconut Grove keeps on upgrading. Investors are flocking to the new residential and commercial projects along the marina. In South Grove million-dollar homes are changing hands as families from all over the world are moving to this neighborhood. Downtown Grove commercial buildings are seeing renovation and the landmark Cocowalk mall may be remodeled soon.
In that context North-West Coconut Grove is now on the growth path, running at a block every 6 months. It is increasingly attracting investors, developers and upper middle-class owners-occupant with still affordable prices. Several townhouses developments have recently been completed in this evolving area and several projects are underway or under review, with exit prices in the $700s and $800s. Bird Avenue, Grant Avenue, the US1 and the Metrorail are driving growth. Land, fixer-uppers, remodeled homes, pre-constructions are available.
Investors who anticipate this westbound expansion will be rewarded. Contact me to learn how to take advantage of the trend.
A rough assessment of the condo market is a 4-step process that we apply here to the greater downtown Miami market, thanks to the data collected by the DDA.
1) from historical data, evaluate the annual absorption of the market (what has been delivered and sold on average during the last cycles). For the area under review we have 2000 units per year
2) from projects pipeline data, find the number of units to be delivered in each of the next years
3) starting from the first year of the cycle, compute for the next few years:
cumulative demand (n)=cumulative demand(n-1)-deliveries (n-1)+annual average absorption
4) for the next coming years, compare the cumulative demand obtained with this method to the annual average absorption. When the former is the greater, offer is still lagging demand. When the former is the lesser, deliveries are expected to begin to exhaust natural demand.
For the greater downtown Miami market, the numbers show a tipping point in 2017, when cumulative demand abate under the weight of deliveries.
Buyers already begin to have the upper hand and can get interesting deals.
Owners who considers selling should list their property right now: prices are holding well despite of the increase of inventory.