Market Studies

It's no secret investor demand is playing a large part in the current housing recovery as cash buyers contribute to close to one-third of home sales. The question on the minds of many is whether the market is experiencing an artificial recovery and whether it will last. Keefe, Bruyette & Woods, (KBW) suggests the question of artificiality is mute because the current recovery will, in fact, last. ""Sure, it may be artificial and in large part driven by high investor purchases and artificially suppressed mortgage rates,"" the firm said in a report.

Nearly two-thirds of millennials expressed an increased interest in buying, and it's not because they are tired of apartment living, according to a survey from Pulte Group, Inc., a national homebuilder. The PulteGroup Home Index Survey (PGHI) showed 65 percent of renters between ages 18 to 34 with an annual income of at least $50,000 said their intention to buy has increased significantly or somewhat over the past year. The majority of millennials, or 52 percent, are interested in buying because they view a home as an investment and have a desire to own and build equity.

Since the foreclosure crisis, several studies have linked foreclosures to falling property values for neighboring homes. However, one researcher from the Federal Reserve Bank of Boston recently set out to discover the impact of foreclosed properties on neighbors who aren't looking to sell their homes. The study found the likelihood of a neighbor complaining about a particular home doubles once a homeowner enters the foreclosure process. Once a property is in REO, the likelihood increases nine-fold, according to the study.

The explanation from the National Association of Realtors (NAR) for the drop in the Pending Home Sales Index (PHSI) for February has to be viewed with a jaundiced eye. According to the NAR, the PHSI dropped because of the low inventory of homes for sale. Of course, that wasn't offered as an explanation one month earlier, when the inventory of homes for sale dropped to its lowest level since December 1999 and the PHSI increased. But when the PHSI fell in February, and the inventory of homes for sale increased, the still-low inventory became a convenient excuse.

After showing disappointing preliminary numbers, the final Thomson Reuters/University of Michigan Survey Index of Consumer Sentiment jumped to end March, according to the Surveys of Consumers group. The monthly index reached 78.6, coming in above February's reading of 77.6 and March 2012's reading of 76.2. Preliminary figures released mid-March showed an index reading of 71.8, and economists surveyed by Bloomberg came out with a median forecast of 72.6 for the month.

Lower rental yields might cause investors to lose interest in the housing market, but according to Capital Economics, that scenario is unlikely to play out this year. Currently, the increase in home prices is outpacing the rise in rents, which ""is weighing on rental yields,"" the firm noted in a report authored by the property economist Paul Diggle. However, Capital Economics stated the reduction in rental yields is actually ""very gradual"" and the ""the total return from housing remains attractive."" Thus, investors, who analysts say are driving the recovery, are not expected to exit the market just yet.

Although prices are improving and foreclosures are declining, there's still room for economic uncertainty to ""dampen"" housing activity, according to DataQuick's Property Intelligence Report (PIR) for February. For February, DataQuick found home prices grew in 34 of the 42 counties on a monthly and quarterly basis. DataQuick also noted four hard-hit states-Arizona, California, Florida, and Nevada-saw double-digit price growth over the last year, while other markets are averaging growth at 2.5 percent.

Last month's uptick in consumer confidence suggests consumers may not be too concerned about pending impacts of fiscal policy, but Fannie Mae predicts they will nonetheless feel some financial tightening over the next few months. Several economic indicators are trending positive right now, but the GSE's March economic forecast warns the pending sequestration and the effects of higher social security taxes may dampen some of the current progress. On the other hand, the GSE continues to see housing as a bright spot in the economy--one that is not likely to darken in the near future.

Personal income rose a solid $143.2 billion or 1.1 percent in February, dwarfing expectations, and spending jumped $77.2 billion, or 0.7 percent, the, the Bureau of Economic Analysis, reported Friday. The data suggest the personal spending component of Gross Domestic Product remained strong in the first quarter. That income grew faster than spending was a boost to personal savings, which increased to $310.9 billion in February from $262.5 billion in January, up from 2.2 percent of disposable (essentially after-tax) income to 2.6 percent.

Mortgage originations in the New England region hit a five-year high in 2012, The Warren Group reported. According to the company's Mortgage MarketShare Module, Massachusetts, Connecticut, and Rhode Island all recorded strong activity last year, with the Bay State showing the most strength.