Keeping you updated on the market. For the week of March 5, 2012.

MARKET RECAP
Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.
The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn't lagging far behind: national year-over-year contracts are up 8.0 percent.
Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we've seen on these shadow homes range between two million to four million nationally.
Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn't be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.
The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.
We've been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.
Falling knives were a very real concern three years ago; that's not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.
Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What's more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.
Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.
Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.

Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Factory Orders(January)
Mon., March 5,10:00 am , et
0.5% (Increase)
Moderately Important. Manufacturing continues to lead the economy's recovery.
Mortgage Applications
Wed., March 7,7:00 am , et
None
Important. The rising percentage of purchases to refinances reflects greater interest in leveraged real estate.
Consumer Credit(January)
Wed., March 7,3:00 pm , et
$10 Billion (Increase)
Important. The uptrend in credit use reflects rising consumer confidence and continued economic growth.
Employment Situation(February)
Fri., March 9,8:30 am , et
Unemployment Rate: 8.3%Payrolls: 208,000 (Increase)
Very Important. Continued strong job growth could force the Federal Reserve to rethink its low-interest rate policies
International Trade(January)
Fri., March 9,8:30 am , et
$48.8 Billion (Deficit)
Moderately Important. A depreciating dollar and higher oil prices have raised the deficit over the past two months.

The Foreclosures-to-Rental Solution
We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.
Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.
We see a few unintended consequences, though. When markets don't develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing six years. The market was incentivized for more home ownership, and we got too much of it.
Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don't always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don't care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?
All we're saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.

It's Paradise.........for buyers

"It's Paradise … for buyers"headlined a recent Fort Myers News Press article
We all know what the big news is in the Gulf. And it doesn't just concern vacationers. We'd be naïve not to realize that homebuyers, although they have a longer horizon of interest, would be wondering about the effect of the BIG Spill on property values on Sanibel and Captiva.
Since we had planned to dedicate this issue of the Islands Telegraph to the local real estate scene anyway, let's launch right into it.
The article referenced above is accompanied by a photograph of a Periwinkle Way motel, recently sold for $1.75 million. (Unstated in the article is the fact that the sale of the motel was brokered by Royal Shell Real Estate.)
We are on the leading edge when it comes to knowing what is happening on the islands and making it happen. We've seen average prices for single family homes on Sanibel recede to 2004 levels. Single family homes on Captiva are at 2001 levels. Condo prices on both Sanibel and Captiva are back to those of 2002.
At Royal Shell Real Estate, we are seeing generally good news on Sanibel and Captiva. Cases in point: For 2010 year to date, listings sold are up 40% over the same period in 2009. The total dollar volume of sales YTD 2010 is up 10.37%, while the average sale price is down 21.15%.
Analysis: This is a superb time to buy real estate on Sanibel and Captiva. Real Estate sales are up; Real estate prices are down. Average prices are down to where they were well before the real estate "bubble" drove them up.
Case in point: Royal Shell Real Estate has current condo listings as low as $185,000.
And the larger, more luxurious homes on the islands are moving well. A Captiva 3/3/1 bayfront private home sold for $2,500.000, 20% below the listed price. A 3/3/0 Beach Villas condo on Captiva sold for $780,000, about 6% below listed price. A sweet 2/2/0 condo unit at Sanibel's Loggerhead Key sold for $416,000, almost 13% below the listed price.
Here's one waiting to be snapped up: $2,350,000 on Captiva's Roosevelt Channel, after a $100,000 price reduction. Check with our Captiva office for details.
As you can see, the prices are good, the values are great, the traffic is active. Local mortgage brokers are placing loans on all types of properties and 30-year fixed rate mortgages are at the lowest since they started tracking them decades ago. This is an excellent time to tap into a deal on your home, second home or investment home on Sanibel-Captiva.