It’s a mixed bag… but then what isn’t?

Hello Friends. Sharing a bit of information with you on this beautiful Friday afternoon, aggregated from my sources. It’s a mixed bag… but then what isn’t? Auto sales, manufacturing, jobs […]

December 3, 2010 // Tracy Shaffer // No Comments //

Hello Friends. Sharing a bit of information with you on this beautiful Friday afternoon, aggregated from my sources. It’s a mixed bag… but then what isn’t?

Auto sales, manufacturing, jobs and retail all up. Historically, housing has led the nation out of recessions. This time it is employment, incomes, and trade that will lead housing out. And for several months in a row each of these key indicators is heading in the right direction. Will it be quick? Likely not. But we are headed in the right direction economically speaking for the first time in 2-3 years. Get ready for a slowly improving environment for housing sales in 2011. Does this portend a rebound? Pending home sales jumped in October, showing a positive uptrend since bottoming in June, according to the National Association of Realtors.

The Pending Home Sales Index rose 10.4 percent (for the US) to 89.3 based on contracts signed in October from 80.9 in September. The index remains 20.5 percent below a surge to a cyclical peak of 112.4 in October 2009, which was the highest level since May 2006 when it hit 112.6. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. In the West the index slipped 0.4 percent to 104.3 and is 15.6 percent below a year ago. The US is improving overall but the Western states seem to be lagging in the RE recovery.

Foreclosure homes accounted for 25 percent of all U. S. residential sales in the third quarter of 2010 and the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process — up from a 26 percent discount in the previous quarter and a 29 percent discount in the third quarter of 2009, according to RealtyTrac’s Q3 2010 U. S. Foreclosure Sales Report. A total of 188,748 U. S. properties in some stage of foreclosure sold to third parties in the third quarter, a decrease of 25 percent from the previous quarter and a decrease of nearly 31 percent from the third quarter of 2009. The average sales price of properties not in foreclosure was $249,721, up 6.42 percent from the previous quarter and up 4.36 percent from the third quarter of 2009. Sales volume of non-foreclosure properties decreased 29 percent from the previous quarter and nearly 31 percent from the third quarter of 2009.

And on a smaller note…
McMansions are rapidly becoming the housing equivalent of harvest gold appliances as more Americans are opting for smaller residential footprints, according to a new Relocation.com consumer lifestyle survey. Homeowners and buyers were asked to weigh in on what they saw as the ideal home size. Forty-eight percent of the respondents indicated that their ideal home size would range from 1,000 to 1,999 square feet, while 29 percent prefer homes that are 2,000 to 2,999 square feet. By comparison, five years ago, according to NAHB (National Association of Homebuilders) the average home’s square footage was 2,400 square feet, nearly 400 square feet bigger than what many homebuyers desire today. The survey also found many Americans still find the suburban lifestyle attractive. Desiring a home near the city but still away from the ‘hustle and bustle,’ 54 percent of Americans indicated a preference for living in a suburban neighborhood. Urban and rural neighborhood settings were only preferred by 24 percent and 22 percent, respectively, of survey participants. Surprisingly, the survey revealed that cost of a residence is not the main deciding factor when purchasing a home. In fact, only 29 percent of respondents stated living costs as the most important reason when considering a move.

Home Prices to Stay Flat but Economic Growth Could Strengthen Home prices will remain near their current levels for the next few years but the U. S. economy could grow faster in 2011 than the consensus forecast shows, according to predictions made at the annual business and economic forecast luncheon of the University of Chicago Booth School of Business. Unemployment is expected to stay high for the next few years, the forecasters agreed. NOTE: I would expect prices of smaller homes to do better, and very large home price to decline.
“We will not see a recovery in housing prices in the near term nor do I expect home prices to drop further,” said Erik Hurst, a professor of economics at Chicago Booth and one of the speakers at the event at the Sheraton Chicago hotel. “That is my take it to the bank prediction for 2011.” He cited as reasons the excess supply of houses on the market and continued weak demand from homebuyers.

Economic growth in the U. S. next year as measured by the percent change in GDP, could reach 3.4 percent and exceed the consensus of economic forecasters, according to Randall Kroszner, who served as a governor of the Federal Reserve System from 2006 to 2009 and another speaker at the luncheon.
“I don’t agree with those who say we are in an extended period of low growth,” said Kroszner, a professor of economics at Booth, “but we are unlikely to have a powerful recovery either.”

And for my skeptical readers, I thought I’d throw this in to be fair.

Housing optimists can’t deny market indicators.

BY STEVE BERGSMAN, FRIDAY, DECEMBER 3, 2010.
Inman News
For most metro areas, home prices peaked some time in 2006 and except for a few minor bumps, it’s been all downhill ever since. 2010 has been no exception. So, if we tally up all the annual sales data since 2006, it’s been a four-year run of bad news regarding the direction of housing values.
Enough is enough, you say, and we should begin 2011 with renewed optimism and vigor. I got your back there, but it’s a weak defense, because intersecting trend lines, including an unexpected, but very strong post-tax credit slump and a shadow inventory problem will keep housing prices heading in the same direction — down. Expect another 5 percent to 10 percent decline in housing prices in 2011. Standard & Poor’s credit analyst Erkan Erturk tries to stay optimistic when it comes to reporting about the housing market. “Looking at where we are today as compared to the days of 2008 through mid-2009 when home-price indices (S&P/Case-Shiller) were showing over 10 percent declines on a 12-month basis, the market has, indeed, stabilized, even improved,” Erturk reported. However, that stabilization doesn’t diminish the fact that Standard & Poor’s analysts predict home prices will decline another 7-10 percent in 2011. The good news, Erturk stressed, is that declines have decelerated. The bad news is, the timeline for declines continues to stretch out into the future.
1. First, unemployment is still a major weight on homebuying trends. Not only are unemployment numbers persistently high, but even those citizens with jobs are feeling insecure, all of which means people who would normally be looking for a new house definitely won’t be. Demand continues to trail supply.
2. Secondly, back in November, the Federal Reserve unveiled a new stimulus plan involving the purchase of $600 billion of U.S. Treasuries. It was thought this event would push mortgage rates down. The opposite has happened. Mortgage rates have been going up. Higher mortgage rates will not be helpful in getting more people to buy homes, which, in turn, would stimulate prices upward.
3. More REO inventory on market. Thirdly, after holding back on putting foreclosed and distressed properties back into the market, banks have been getting more aggressive. As these properties leak into local markets at reduced prices, home values cannot move upward. In fact, home prices are more often than not pulled lower.
“If distressed inventory comes into the market slowly, it is always helpful, as the market can digest the new supply,” said Erturk. “At the same time, if they come into the market too slowly, you are prolonging the problem and the market won’t hit bottom for a few more years.”

One of the biggest obstacles to house prices moving higher and not lower is the unexpected aftereffects of the home-purchase tax credit that was successful for what it was designed to do: stimulate demand by enticing buyers into the market. Sambucci is another optimist with bad news. “We don’t like being bearish,” he said, before letting me know that he thinks home prices will decline another 7-9 percent in 2011.
Perhaps the biggest roadblock to getting home prices to reverse direction is shadow inventory overhang. Shadow inventory — and I’ll use S&P’s definition — consists of outstanding properties whose borrowers are, or recently were, 90 days or more delinquent on their mortgage payments, and properties in foreclosure and REOs. According to S&P, the time it will take to clear the supply of distressed homes on the market, or those that need to be resold because of defaults, declined after reaching a peak in mid-2008, but has been on the rise again since fall 2009. As of mid-year 2010, S&P estimated it would take the existing shadow inventory 40 months to clear. Another way to look at this problem is: Approximately 2.09 million properties were in servicers’ foreclosure inventories at the end of October, according to Lender Processing Services Inc. Combined with the number of loans that were 30 days delinquent, the total number of noncurrent loans reached 7.04 million.
One optimist who has mixed the numbers to look almost good is Alex Villacorta, a senior statistician with Clear Capital in Truckee, Calif. Some analysts were saying home prices would decline 5-10 percent in 2011 as far back as September 2010, Villacorta noted, but between August and November 2010 prices had already fallen 7 percent, so the big decline may have happened sooner than later.
“We will see a majority of the falling prices during the winter,” he said. “I don’t think that minimum 5 percent decline will be spread out through all of 2011. If it does occur, it will be in the first part of the year.”
During the housing bubble, individual markets generally moved downward in a consistent line, but now markets are “splintering.” Housing prices in some metros continue to decline, some are stabilizing, and a few have now reached recovery.
“When people talk about national averages, historically, that was OK,” he said. “But with the volatility these markets have seen over last couple of years, it’s a brand-new ballgame.”
Villacorta likes the trend lines for New York and Washington, D.C., and suspects the housing market in those two cities have already hit bottom. He’s a little concerned about Denver, which was moderately affected by the deflation of the housing bubble only to be hit hard by the economic recession. At the bottom of Villacorta’s list are the usual hard-hit areas of the country in Florida, Arizona and California, but taking the crown as the worst of the worst is Las Vegas, where almost three out of four homes have been foreclosed.

Hope you’ve found this interesting and helpful. Now go out and grab yourselves a weekend!

Tracy Shaffer


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