Housing Numbers: Green Shoots or Red Flags?

Two new pieces of data out today suggest, at face value at least, an improvement in the housing market.

First, construction spending rose 0.3 percent in March. Now granted, that's not an awful lot, but it's the first time that number has been positive in six months. The trouble is, single family construction dropped 8.6 percent after falling a record 11 percent in February. Nonresidential construction, however, came in strong and actually unexpectedly strong.

Okay, great then about nonresidential, except that the gains came in commercial buildings, educational buildings and manufacturing, which are all overbuilt already for today's real estate climate. "March's gains were likely from ongoing projects that were started when the outlook was brighter than it is today," writes economist Patrick Newport of IHS Global Insight.

Of course on the bright side, you could argue that continued drops in residential construction spending is a good thing for the market, given how high new home inventories are right now. The less we build, the faster we get back to normal levels of supply and demand. That's the bright side, if you are not actually a home builder.

The second piece of data, Pending Home Sales from the National Association of Realtors, also came in higher than expected. An increase of 3.2 percent month to month in contracts signed for existing homes could signal a coming boost in existing home sales. Of course, "while pending home sales have historically been a one-month leading indicator to existing home sales, with a 71% correlation using a one-month lag," writes JP Morgan analyst Michael Rehaut, "we note that since October, the relationship has been more volatile. Specifically, Feb.’s Pending Home Sales rose 2.0%, but March Existing Home Sales fell 3.0%." Rehaut adds that rising unemployment and weak consumer confidence will keep these levels depressed through the year.

Most agree that the increase in demand is driven by continued demand for foreclosures, a huge increase in affordability, low mortgage rates and the $8000 first time home buyer tax credit. Credit-Suisse analyst Dan Oppenheim in looking for a correlating rise in existing home sales in April, based on these pending numbers, a 3.9 percent increase to be precise. Since the largest gains appear to be in the South and West (homes to your biggest boom and bust states), we can probably expect to see even a bigger percentage of sales coming from foreclosures or short sales. And that's not bad.
The faster we get rid of the distressed inventory, the faster we can get regular, higher-priced homes some action.

Posted By:Diana Olick, http://www.cnbc.com/id/30563800

Beach to Bay Real Estate Center is a full service real estate brokerage servicing buyers, sellers and renters at the Delaware beach areas. We handle all forms of real estate, including residential, commercial, and lots and land, in addition to bank owned, short sales and auctioned properties and representation; mortgage needs including refinances, new home purchases, second homes, first time homebuyer programs and reverse mortgages; maintain professional relationships with local settlement attorneys, insurance companies, contractors, and inspection companies; and are affiliated with a preservation and restoration company. Beach to Bay services all of Sussex County, and southern Kent County, with a strong focus on the beach resort areas of Rehoboth Beach (19971), Lewes (19958), Bethany Beach (19930), Dewey Beach (19971), Milton (19968), Millsboro (19966) and more.

Demand for home purchase loans jumps

Increase could help gauge the outlook for spring buying season

NEW YORK - U.S. mortgage applications rose last week, as demand for home purchase loans jumped even as interest rates edged up from recent record lows, data from an industry group showed on Wednesday.

Demand for home purchase loans, an indicator of home sales, far outweighed demand for refinancing. The increase may help gauge what is in store for the hard-hit U.S. housing market this spring, the peak home buying season.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended April 3 increased 4.7 percent to 1,250.6.

Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said home loan demand at his company has remained strong and steady the last several weeks.

“In addition, the quality of the borrowers coming to us has remained high with high FICO scores and low loan-to-value ratios,” he said on Tuesday. “This is an encouraging sign as responsible borrowers looking to purchase or refinance their homes are getting the help they need with low rate, high-quality loans.”

FICO scores refer to borrowers’ credit ratings.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.73 percent, up 0.12 percentage point from the a record low the previous week but well below 5.78 percent a year ago. The survey has been conducted weekly since 1990.

“As rates remain at historic lows, we anticipate this trend will continue as more borrowers take the time to shop around for competitive rates on home loans,” he said.

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

Low mortgage rates have generated demand for home refinancing loans and should continue to do so, although when it comes to demand for loans to buy homes, the low rates had only a moderate impact until last week.

The MBA’s seasonally adjusted purchase index rose 11.1 percent to 297.7. The index, however, dropped 22.6 percent from its year-ago level of 384.7.

Overall mortgage applications last week were 72.4 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 13.3 percent.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said home loan activity continued to improve as consumers took advantage of attractively low interest rates.

“While credit guidelines remain stringent, there are plenty of qualified folks who are putting more money back in their pockets by locking in a low rate,” he said.

“Incentives like the first-time home buyer tax credit are helping to generate increased purchase activity,” he said.

The Mortgage Bankers Association’s seasonally adjusted index of refinancing applications increased 3.2 percent to 6,813.5. The index was up 150.1 percent from its year-ago level of 2,724.7.

The refinance share of applications decreased to 77.9 percent from 79.1 percent, while the adjustable-rate mortgage share of activity was unchanged at 1.5 percent.

Fixed 15-year mortgage rates averaged 4.49 percent, up from 4.45 percent the previous week. Rates on one-year ARMs increased to 6.23 percent from 6.20 percent.

updated 12:00 p.m. ET, Wed., April 8, 2009

http://www.msnbc.msn.com/id/30107144/

Beach to Bay Real Estate Center is a full service real estate brokerage servicing buyers, sellers and renters at the Delaware beach areas. We handle all forms of real estate, including residential, commercial, and lots and land, in addition to bank owned, short sales and auctioned properties and representation; mortgage needs including refinances, new home purchases, second homes, first time homebuyer programs and reverse mortgages; maintain professional relationships with local settlement attorneys, insurance companies, contractors, and inspection companies; and are affiliated with a preservation and restoration company. Beach to Bay services all of Sussex County, and southern Kent County, with a strong focus on the beach resort areas of Rehoboth Beach (19971), Lewes (19958), Bethany Beach (19930), Dewey Beach (19971), Milton (19968), Millsboro (19966) and more.

Existing Home Sales in Surprise Jump

Sales of existing homes in December rose 6.5% from November. But prices continued to fall, down over 15% from last year.

NEW YORK (CNNMoney.com) -- The number of existing homes sold in December rose 6.5% from the previous month, according to a report released Monday, as bargain hunters took advantage of plummeting prices.

The National Association of Realtors said that home sales increased to a seasonally-adjusted, annualized rate of 4.74 million units. That's up from a revised pace of 4.45 million units sold in November and more than the rate of 4.4 million units projected by a consensus of industry analysts as reported by Briefing.com.

"We have some months to go before we are out of the woods on the housing front," said Robert Dye, senior economist at PNC financial services group. Especially considering "weak consumer confidence and ongoing rapid deterioration in labor markets."

Still, December's existing home sales are down 3.5% compared with December of 2007, when the seasonally-adjusted, annual sales rate was 4.91 million. Existing homes include single family homes, townhomes, condominiums and co-ops.

For all of 2008, there were 4,912,000 homes sold, which was the lowest volume since 1997, when there were 4,371,000 homes sold. Sales volume in 2008 was down 13.1% from the 5,652,000 existing homes sold in 2007.

Bargain hunters: Bargain prices are bringing buyers back into the market. The median existing home price was down 15.3% to $175,400 from December 2007, when the median price was $207,000. The median price measures where half of the homes sold for more and half sold for less.

"Americans love a bargain, and the housing market is no exception," said Mike Larson, real estate and interest rate analyst for Weiss Research in a written statement.

Thanks to the sales increase, the number of homes available on the market decreased 11.7% in December from the previous month, to 3.68 million. That represents a 9.3-month inventory supply at the current pace of sales, down from a 11.2-month supply in November.

"That's exactly what we need to see if the housing market is ever going to get back to a state of equilibrium," said Larson.

Home prices were pushed lower by the high volume of distressed sales, which accounted for 45% of December transactions according to the report.

"The higher monthly sales gain and falling inventory are steps in the right direction, but the market is still far from normal, balanced conditions," said NAR chief economist Lawrence Yun in a written statement. He warned that the housing market is far from healthy. "Buyers will continue to have an edge over sellers for the foreseeable future."

Surge in the West: The number of homes sold nationwide was buoyed by a surge in the West, where the housing market has been hardest hit by a record number of foreclosures.

Existing home sales in the West surged 13.6% to an annual rate of 1.25 million in December, up 31.6% from a year ago. But the median price in the West was $213,100, down 31.5% from December 2007.

In the South, existing home sales increased 7.4% to an annual pace of 1.74 million in December, but that was still 11.2% lower than December a year ago. And sales in the Midwest increased 4% in December to an annual rate of 1.04 million, but were down 10.3% from the same period last year.

The Northeast saw sales edge 1.4% lower, to an annual pace of 720,000 in December, down 14.3% from December 2007.

In the months to come: Analysts said that the weakening job market would slow any recovery in housing.

On Monday morning, a slew of companies announced a massive wave of job cuts. Home Depot (HD, Fortune 500), the No. 1 home improvement retailer, announced it would eliminate 7,000 jobs, or 2% of its total workforce, while Caterpillar (CAT, Fortune 500) said it will cut 20,000 jobs.

"Unfortunately, we are seeing fast and furious [layoffs] now," said PNC's Robert Dye. "And that does add to the level of uncertainty and it does put workers and consumers on edge."

Mike Larson from Weiss Research echoed that sentiment. "It's hard to imagine a lasting turn in the housing market with thousands of layoffs being announced every few days," he said.

The Obama administration is now at work on an economic recovery plan, and Yun said that this will be critical to the revitalization of the housing industry.

"The Obama administration and Congress need to move fast to stimulate a spring sales upturn which will help to stabilize home prices and set the foundation for a sustainable economic recovery," Yun said in a statement.

By Catherine Clifford, CNNMoney.com staff writer

Last Updated: January 26, 2009: 12:30 PM ET

The graph below reinforces my belief that a housing stimulus could turn the housing market on a dime. Thus, supporting the argument that to “Buy at the Bottom” you need to buy prior to the announcement of Obama’s Stimulus Package on or shortly after January 20th.

Anyway, the last time the gov’t intervened in the housing market by providing a tax credit and reduced mortgage rates (as the NAHB is requesting now) was in 1975. Housing starts immediately reacted to the stimulus and turned up within 2 months. Now, keep in mind that Housing Starts typically occur (on average) about two months after the home sale (contract signed). So, what this chart shows is that Home Sales literally turned on a dime the moment the Stimulus went into effect. This should be expected . . . it’s very similar to a Black Friday sale at a retail store. The first people to get in the doors and buy benefit from having the most products available. This is why people line up outside the doors of store for hours before the doors open . . . they want to have the best selection and make sure they get to buy products before they’re sold out. This phenomenon actually caused people to get trampled this year and push the doors down at Walmart . . . which is crazy and disturbing but it shows you how badly people want to be the first to capitalize on a major sale. Well, it’s the same with housing. For those who have been waiting to buy a home and can still afford to do so, they will benefit by being the first people “through the doors” and thus get the greatest selection of homes and maybe even capitalize on Builder incentives that the Builders haven’t yet removed. And make no mistake, Builders will be very quick to discontinue their incentives once they see a pickup in housing demand. I know because I am one of these builders who intends to remove or at least reduce my incentives shortly after the announcement of Obama’s stimulus package.

So, here’s the thing that smart buyers already know . . . they can get special entrance through the side door of the housing store right now, capitalize on the sale prices, have the best selection, and have a private showing of all the store merchandise. What I’m saying is that for those who have been waiting to buy a home, the best time to capitalize on Obama’s housing incentives is right now, prior to them being announced (assuming you setup settlement for late January/early February). The only reason not to do this is if you believe that Obama will not incorporate some sort of housing stimulus into his Economic Recovery Package. In my opinion based upon everything I’ve read and based upon the sound logic that fixing housing is the most important factor in fixing the economy, I think it is highly unlikely that Obama won’t enact a housing stimulus shortly after inauguration. If your buyers are worried that by buying now, they might not be eligible for any housing stimulus incentives announced on January 20th, here’s what I recommend they do: Include a contingency in the sales contract that says the buyers intend to capitalize on the housing incentives in the anticipated Economic Recovery Package and have the option to cancel this contract if: 1. A package is not passed prior to settlement or 2. If contracting prior to settlement somehow makes them ineligible for the incentives. To protect the seller, I would include a clause that says: In the event that the Buyer is not eligible for the housing incentives due to the contract being executed prior to the incentives being enacted, a new contract will be written between the Buyer and the Seller with the same price and terms of the existing contract and executed immediately after the housing incentives are enacted. Once the new contract is executed, the existing contract will be declared null and void. Anyway, you get the picture . . . the point is that there are ways to incorporate language into the contract that allows the Buyer to “Have their Cake and Eat it Too” by protecting the buyer in the event that they are not able to eligible for the housing stimulus incentives as a result of contracting prior to the incentives being implemented.

Remember, the main reason to buy now is so Buyer’s can negotiate a good deal for themselves at the point when Sellers are the most desperate. As I explained in my prior email, after the housing stimulus is announced, Seller’s won’t be willing to offer the types of deals they are now. The pressure will be off and the balance of power between Buyer and Seller will be somewhat restored.

End of Year 2008 Housing Update

Housing Starts

Housing starts for November fell 18.9% from a year ago to an annual rate of 625,000 homes. This is very significant. First, let me explain how low this number really is. This is the lowest housing starts numbers since the government started tracking this statistic in 1959. The lowest housing start number in the ‘91 housing recession was 798,000. The lowest housing starts number in the 1981 housing recession was 837,000 homes. The average housing starts over the last 30 years has been 1,514,000 homes. So, we are almost 1/3 of the average right now. The current # is even more significant when you consider how many more people we have living in the US than we did 30 years ago. The US Population is 37% higher now than it was 30 years ago. Keep in mind, housing starts represent about 75% new homes and about 25% replacement of old homes (tear downs) and I would argue that as housing starts decline, the % represented by home replacement goes up. So, of the 625,000 housing starts, only about 469,000 represents new homes. These numbers are awful but here’s the good news . . . a low number is good for everyone except for builders. Why? Because, this means that builders are finally making very significant reductions in new home construction, allowing inventory (of existing and new homes) to be sold off. Housing starts are an indication of Builder Sentiment. So, the lower housing starts are, the more desperate builders are . . . the more desperate builders are, the better deals they are willing to give. This is important for any of your prospects looking to buy a new home and I’ll write more on this later. So, that brings us to inventories.

Home Inventory

First, it is important to recognize that new home inventory has been falling steadily from a peak of 572,000 in July, 2006 to 374,000 in November, 2008 (in other words, it has been declining for 2 ½ years!). The media tends to skew public opinion about inventory by focusing only on “Months of Inventory”. Months of Inventory is basically how many months it will take to sell the existing new home inventory at the current new home sales pace. Of course, when the sales pace is at historically low levels, even modest new home inventory will represent a high Months of Inventory number. The average new home inventory over the last 30 years is 350,000 homes so we are only slightly over the average right now at 374,000 homes . . . so obviously, the new home inventory situation isn’t nearly as bad as the media would like you to believe. Even more important is how quickly the Months of Inventory number could drop when the housing market bottoms and sales starts going up. If we get a 25% increase in homes sales along with a 25% decrease in inventory, the Months of Inventory # would drop by 40%. It’s at 11.5 months now so it would drop to 6.9 months. The point is, in most of the past housing rebounds, home sales have increased rapidly off their bottoms and home inventories have dropped rapidly so it is highly likely that during this coming winter/spring, when I expect home sales to pick up, the Months of Inventory # will improve dramatically.

Sales

There’s not much to say about Sales other than they are low and got even lower in November. I expect December to be similar to November if not slightly higher than November. What really hurt sales in November and December was the Policy Makers leaking the information that they may buy mortgage rates down to 4.5%. All this did is put would-be buyers more firmly on the fence as they wait for 4.5% mortgage rates. I expressed my frustration with this at my Philadelphia Fed Meeting on December 9^th to Charles Plosser, the President of the Philly Fed and a member of the FOMC Committee. I don’t think the Fed realized how damaging this information leak was to sales. Regardless, I believe the low interest rates have created some renewed interest in home buying in the latter half of December so my suspicion is that December home sales (seasonally adjusted) will be a little better than November’s. I do expect that we’ll see a significant improvement in Sales this Winter and Spring, regardless of what the economy does. People are going to realize that the waiting game is over and now is the time to buy that home they’ve been putting off for a few years. Also, more importantly, new home buyers will start coming into the market and stop living with their parents and this will help sales across the board because new homes buyers will buy a home from someone who will finally be able to go out and buy the home they want but couldn’t until they sold their existing home. This will play an especially large role in terms of enabling retirees to buy their retirement home (in Sussex County we hope J).

Why Buying a Home in the Next Three Weeks May Prove to be an Extremely Smart Decision

This is the real reason I wanted to blog this information. In my opinion, buying a home between now and January 20^th (Inauguration) will prove to be the best time to buy a home in our lifetime. Here’s why:

So, there’s no doubt that there is pent-up demand out there and that many people have been patiently “waiting for the bottom” for a couple years now. The media reacts to reported housing numbers (sales & price). Sales always pickup before price and in most prior downturns, sales picks up very quickly. And, one month’s sales are reported about 3 ½ weeks after the end of the month so there is a delay between the actual activity and when the data for that activity is reported. Only when the numbers are published will the media report this data and make predictions based upon it. The point is, if you wait for the media to start reporting about a bottom in home sales, you will already be two or three months late and will miss the bottom. However, even more important, if the sales pace returns with a vengeance like it has in most of the past downturns, builders and existing home sellers will not be willing to offer the great discounts and deals they are now. Once it is common knowledge that the market has bottomed, home sellers will feel as if the pressure is off and will be less desperate and thus less willing to agree to huge discounts or incentives . In other words, the best deals are going to be given to the customers that buy prior to the bottom when sales are very slow because once we have the bottom, sales will pickup and sellers will significantly reduce their willingness to offer incredible deals. Also, sales are always slower during the winter so sellers are even more incentivized right now to offer incredible deals.

Here’s another reason to buy a home very soon. The window of opportunity right now to get a great deal is really only about 3 weeks long . . . here’s why: Obama’s inauguration is on January 20^th. Do you think Obama is going to implement an Economic Stimulus Package very shortly after entering the White House? His economic team has already spent numerous hours working on this package so that it is ready immediately upon his inauguration. This is no secret . . . Obama has been very vocal about this. Do you think Obama’s Stimulus Package is going to have a strong Housing Stimulus component to it? You bet . . . it is becoming more and more accepted by economists that to fix the economy, you have to fix housing. So, in other words, on or shortly after January 20^th, we will have a package in place to seriously kick start housing. Now, ask yourself this . . . once the package is announced and home sellers (Builders & Existing Home Sellers) know that Obama has taken steps to significantly increase demand in housing, what do you think will happen to their willingness to offer incredible deals? I can tell you . . . it will significantly decline. Why would they offer a great deal when they know that they no longer need to since the housing stimulus is going to be all the incentive buyers need? The basic point is this . . . the window of opportunity for would-be home buyers to be offered a special extra incentive or significant discount is only open for 3 more weeks. When Obama takes office, he is going to move quickly and aggressively to fix housing. Once he does this . . . even before we see the results, just knowing what he is going to do will take the pressure off housing and make the market a little less favorable to buyers. Here’s the other good news . . . for buyers who contract before January 20^th but settle after January 20^th, they will very likely be able to benefit from whatever stimulus Obama implements (low rates, tax rebates, etc). So, buying over the next three weeks is a “Two-fer” . . . you get the great discounts associated with the challenging housing market and you’ll most likely also be able to capitalize on whatever incentives are included in Obama’s package.

In fact, you can take this argument even further for new home buyers . . . Obama’s stimulus package is likely to be temporary because only a temporary housing stimulus will create the desired urgency and housing demand. So, Obama may do something like lowering conforming interest rates to 4.5% for 6 months only. If he does this, any new Home Buyer who waits until the package is announced may not benefit from this if their house cannot be built fast enough to settle within 6 months. New Home Buyers who buy now increase their chances of capitalizing on any temporary housing incentives in Obama’s stimulus package.

Anyway, hopefully this all makes sense. I really believe that the peak of home sellers willingness to offer huge discounts or incentives is right now. Waiting until Obama’s Inauguration to see what he’s going to do seems like a logical approach for would-be home buyers but I think it will prove to be a mistake since the certainty of knowing the specifics of his housing stimulus will make home sellers feel more secure and less willing to offer great deals.