Appreciation rates

This week I was showing homes to a client who made the comment that it appeared to her that home prices had dropped since she had last looked at homes six months ago. They haven’t dropped but the number of available homes in her price range has increased. Home prices are still increasing but at a much slower pace than during the last four years.

Average U.S. home prices climbed 12.5 percent in the last year, but a slower rate of appreciation shows signs the market is softening, according to a government report released this week. Appreciation for the first quarter was 2.03 percent, or an annualized rate of 8.12 percent, the lowest rate since the first quarter 2004 and about one percentage point below the rate from the previous quarter.
"These data show average housing prices still growing stronger than some might have expected," OFHEO Acting Director James Lockhart said in a statement. "They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most." While house prices climbed in many areas in the first quarter, some regions saw prices decline, according to the report.

For the first time since the fourth quarter of 2002, negative quarterly appreciation rates were observed for some states. Appreciation rates over the past year remain lowest in the East North Central Census Division. Arizona continues to exhibit the greatest appreciation rate, although price growth has dropped significantly in that state. Quarterly appreciation in Arizona dipped from approximately 7.4 percent to 3.8 percent, while its four-quarter appreciation dropped from over 35.5 percent to 32.8 percent. Quarterly appreciation rates were off significantly in the Tucson and Phoenix-Mesa-Scottsdale metropolitan statistical areas.
Rapid increases continue to be widespread in Florida, the report said. Out of the 20 metro areas with the largest percentage house price gains in the past year, 10 were in Florida. Also, prices continue to rise in some areas affected by Hurricane Katrina, and appreciation rates were particularly robust in New Orleans-Metairie- Kenner, La., and Hattiesburg, Miss.

The Pacific Census Division has regained its position as the fastest appreciating division, overtaking the Mountain Division, the report said. "Increasing sales inventories are apparently giving buyers greater bargaining power, while increasing interest rates are dampening demand," said OFHEO Chief Economist Patrick Lawler.
OFHEO's house-price index is based on analysis of data obtained from Fannie Mae and Freddie Mac from more than 31 million repeat transactions over the pat 31 years. OFHEO is the federal regulator of government housing enterprises Fannie Mae and Freddie Mac.

New Homes

It’s no wonder that builders have standing inventory leftover from last year. Area builders pulled 20,000 building permits for single –family homes, condos and apartments during 2005. One of every 10 house starts in the state last year was built within 50 miles of the state capital. The leading areas for new construction were: Lincoln with 2,689 new homes, Elk Grove with 2,428 and the Natomas Bowl (12 feet below the Sacramento River and surrounded by weak levies) with over 2,000 new home starts.

The building industry doesn’t anticipate 2006 will see as much new construction as they did in 2005. Rising interest rates and leftover inventory will slow new building permits in the area and across the state.

The California Building Industry Association expects new home starts statewide to drop to 190,000 units in 2006 compared to the 208,804 last year. New single-family homes will account for 155,000 of all permits pulled this year while 54,000 new starts will consist of apartments and condos.

Last year California ranked third in the country in new construction behind Florida with 287,000 residential units and Texas, which started 210,000 new homes. Although the Capital Region accounted for 10 percent of all new construction in the state, Los Angeles ranked first for the number of new units built with 11,550. Sacramento’s ranking was seven, Elk Grove 14 and El Dorado County with 1,621 new starts ranked number 34.

The building industry is overly optimistic. Watch for new permits in the area to drop more than the 10 percent industry analyst anticipate. Many builders are currently reevaluating their construction schedule. Builders have continued their sales volume by deep discounts and incentives for buyers. That will not continue.

Getting better advice

A reader’s question: My wife and I recently purchased a house. The purchase coincided with the sale of our condo. I have a real estate license and functioned as the listing agent. When we went to closing, we encountered multiple problems stemming from the escrow agent's desire to conduct a "dry settlement." The issues were finally resolved after three days. As a result of these delays, we had to pay our movers overtime and could not close on our new home on time nearly costing us the sale.

We have attempted to get the escrow company to reimburse us for the extra money their delay cost us, but to no avail. Is there any way short of going to small claims court to get this matter resolved?
Answer: I think you will have to go to Court, if that is really what you want to do. Your first mistake was acting as your own agent regardless of a license and the second was to schedule the sale of your house for the same day that you purchased your new property.

I recognize that this is done all the time, and usually everything works out. But there are always "glitches" in the settlement process.
Your best approach is to sell your house first, and have your buyer agree to let you stay in the house for a few days. You will sign a "post occupancy agreement," and will have to pay the buyer money for the days in which you stay in their house. Typically, sellers pay what is known as "PITI" -- which stands for principle, interest, taxes and insurance. Your buyer will have to start paying a mortgage on the house they just bought, so it is only fair that you reimburse the buyer for the time that you will continue to reside in their new house.
This should not be a problem for you. Keep in mind that you no longer have to pay this PITI on your old house, and you also will have all of the sales proceeds at your disposal.

You referenced a "wet settlement." This is a lending term which means that when a person goes to settlement, the lender's funds must be on the table. This doesn’t happen in California.
Compare this to a "dry settlement," where there is no money available at the closing. Usually, the escrow company will complete the paperwork, send the legal documents to the lender for review, and then the lender will fund the transaction.
As you can appreciate, this can cause a long delay before the seller will get his money. This will also cause the seller to pay additional interest on his loan, since the loan will continue to accrue interest until the lender is paid in full.
Many States have enacted "wet settlement" acts. The laws differ from state to state but it requires the escrow company to disburse all funds within two business days after all the funds are collected and deposited in the escrow/title company's trust account.

From the facts that you told me, I am not sure that your escrow company was in violation of any applicable wet settlement act. You did get your money on the same day that closing took place -- albeit several hours later.
If you had been more familiar with lending and escrow procedures you could have avoided making incorrect assumptions. Acting as your own agent may have saved you a commission but cost you further time and money. You could have ended up as a defendant in court as a defaulting party on your purchase. Next time get better advice.