Despite what many pundits have said over the past few years, the housing market remains in a deep funk and looks to be in a double dip scenario. While it is true that it’s effect on GDP is less than it was a few years ago, it does not mean that the largest asset most of us own will not weigh on our consumption decisions. With nearly 50% of all Americans holding less than $2,000 in retirement accounts, many rely on cashing out and selling their home in retirement.
Historically, the long-term appreciation of residential real estate is a modest 3%. After the nearly doubling every few years event we experienced in the early 2000’s the returns may be muted by the inescapable law of mean reversion. Needless to say you must have the right frame of mind and time frame when buying a home in this environment. Below are a collection of thoughts/articles from the past week. Stay tuned! {TJM}
If Spin Were Reality – We’d Have A Recovery | Nomi Prins
- It wouldn’t matter that New Home Sales are at their lowest rate since reporting began in 1962.
- It would be fine that Existing Home Sales (the number of completed transactions) were down 9.6% over the month, and 2.8% since last year.
- It would be cool that Pending Home Sales were down 2.8% over the month, and 1.5% over the year.
- It would be a symptom of recovery that the average Sale Price for non-foreclosed homes is $246,358 – below 2003 levels, and for foreclosed homes, is $169,965.
- It would just be a coincidence that 39% of homes sold in February were distressed (sold at a discount), many of those to investors, not to end-home-dwellers, up from 35% last February.
- It wouldn’t have anything to do with people’s housing situations, that Realty Trac, ‘the leading foreclosure online market’ maintains a top ten ‘Hot’ foreclosure property states list. (Ohio leads the list, with a 43% ‘foreclosure savings’ rate for ‘investing’ in a foreclosed property vs. paying up for a non-foreclosed one.)
Single Family Home Sales at All-Time Low
Sales of new single-family homes collapsed in February, the Commerce Department reported Wednesday, as a combination of high unemployment, tumbling prices and a glut of cheaper alternatives brought activity to a near-standstill. New-home sales fell 16.9% to a seasonally adjusted annual rate of 250,000 in February, though January’s figures were revised higher to 301,000 from 284,000. Compared to February 2010, sales collapsed by 28%. Every region but the West saw record lows, and in the Northeast, sales dropped by 50% compared to year-earlier levels. ~MarketWatch
New home sales fell to the lowest level on record in February. The new home market is facing two major problems. First, there are far too many existing homes on the market, many of which are almost new and – due to foreclosures and short sales – selling at a steep discount to fair value (or even building costs). Second, despite low mortgage rates, credit conditions are very tight, particularly for buyers who don’t have very good credit scores and a 20% down-payment. Interestingly, about half of the new homes sold are already completed. By contrast, during the housing boom the vast majority of new homes sold were either still under construction or not even started. In other words, buyers today can easily forego the headache of waiting for their new home to be finished. Buyers who have access to credit or can buy with cash have never been in a better position. We expect new home sales to eventually increase, but it will take several years to fully recover due to the large inventory of existing homes. ~Brian Wesbury
Case-Shiller Survey Shows Continued Double-Dip | BusinessInsider
The 10-City Index is currently just 2.2% above its recent low from May 2009. The 20-City is less than 1% above its level from that same month. Both indexes peaked in April 2006 and both are currently down 31% since then.
Data through January 2011, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show further deceleration in the annual growth rates in 13 of the 20 MSAs and the 10- and 20-City Composites compared to the December 2010 report. The 10-City Composite was down 2.0% and the 20-City Composite fell 3.1% from their January 2010 levels. San Diego and Washington D.C. were the only two markets to record positive year-over-year changes. However, San Diego was up a scant 0.1%, while Washington DC posted a healthier +3.6% annual growth rate. The same 11 cities that had posted recent index level lows in December 2010, posted new lows in January.
HOME SALES — AN OXYMORON? | David Rosenberg
There may be homes but they’re not selling. U.S. new home sales slumped badly in February ― down 16.9% MoM or 89% at an annual rate (you read that right) to a record low 250k units (annualized rate). While some may claim that adverse weather conditions played a role, the reality is that activity was down in every region of the country ― not only down, but to unprecedented lows too.
How can anyone really be talking about a normal recovery when housing is still in depression? Let’s talk about normal. What’s normal is that at this stage of the post-recession recovery, new home sales would have risen 27% from the time the expansion began ― not having sagged 37% to fresh all-time lows.
The big news was on pricing. No matter how far the builders cut production, demand continues to recede at even a faster rate. Median new home price slid 13.9% on the month, following a 0.8% decline in January, taking them to $202,100 ― the lowest they have been since December 2003. This may not be deflation as far as consumer prices go, but it is serious deflation on the most critical part of the household balance sheet. And sadly, more deflation is very likely on its way.
The slide in sales combined with no decline in empty new units for sale boosted the inventory backlog to 8.9 months’ supply from 7.4 months in January. That is at least 30% more than what would typify a housing market in equilibrium.
What is very clear from both this week’s resale and new homes sales data is that “trading down” has become a key and rather deflationary feature of the residential real estate market. The one segment of the new market that actually posted higher sales was in homes priced between $150,000-to-$190,000. The high-end ― the over $750,000 chunk ― has seen activity dry up for each of the past two months.
Last point ― new home sales only accounted for a mere 6% share of total single family sales, versus around 20% in the cycle peak in 2005. No wonder the S&P 500 homebuilding stocks can’t seem to recover! Dead money.
BETTER NEWS ON HOUSING FRONT … BUT STILL NOT GOOD | David Rosenberg
U.S. pending home sales rebounded 2.1% in February after two awful months but are still down 9.3% from year-ago levels. This has become a notorious volatile indicator, and the trend is still extremely soft, though it does portend a
bit of rebound in coming months ― but not enough to break the primary path which is visibly down. There are up to four million homes in foreclosure or in the pipeline so to be talking about any housing recovery at this juncture is
premature, to say the least.
By The Numbers | Direxion Funds
FOR SALE – The number of existing homes for sale jumped by +119,000 (to 3.5 million) from the end of January 2011 to the end of February 2011. By comparison, 4.6 million existing homes (as opposed to new homes) were on the market for sale as of 7/31/08 (source: National Association of Realtors).
DOUBLE-DIGIT – The average interest rate nationwide on a 30-year fixed rate mortgage was at least 10% for the 12 consecutive years of 1979-1990 (source: Housing and Urban Development).
HISTORICALLY LOW – The average interest rate nationwide on a 30-year fixed rate mort
gage was 4.81% last week, 64 basis points higher than the 4.17% record low set in mid-November 2010 (source: Freddie Mac).