Your Fall Housing Market Update
by
Mike Larson
Every few months for the past couple of years, I've made
it a point to update you on the state of the housing
market. I feel it's essential to do so because ...
•
You may be buying, selling, or holding a primary residence
or vacation home.
•
You probably have a mortgage, and maybe a home equity
loan.
•
And you're probably concerned about the broader economy,
which the housing and mortgage markets significantly
impact.
So
where do we stand now?
Well, the stabilization and very mild recovery I first
told you was coming back in the spring, continues apace.
Sales have generally been picking up. The supply of homes
for sale has generally been falling. And prices, while
still weak and falling, are not falling as quickly.
The
real question is: What happens when the mammoth support
that the government is throwing at the market ends?
Used Home Market
Finding Its Footing
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In September, existing homes sales hit a level not
seen in over two years. |
I'll
start with the existing home figures, since that's the
most important part of the market. Most of us own "used"
homes and sales of such homes account for around 75
percent to 85 percent of overall transactions in any given
month. The latest:
* Sales surged 9.4 percent to a
seasonally adjusted annual rate of 5.57 million units in
September from 5.09 million in August. That was twice the
gain that was expected, and it left sales running at the
highest level since July 2007.
* Single-family sales gained 9.4 percent,
while condo and cooperative sales rose 9.7 percent. By
region, sales climbed across the board, with the Northeast
bringing up the rear at +4.4 percent and the West leading
at +13 percent.
* Better yet, the raw number of homes for
sale dropped 7.5 percent to 3.63 million units from 3.92
million in August. Supply was down 15 percent from a year
earlier. That helped push the "month's supply at current
sales pace" indicator of inventory down to 7.8 from 9.3.
That's still higher than the 5-6 month range that's
considered "normal." But it's a significant improvement
from the double-digit readings we were seeing.
* Pricing is still weak, with the median
price of an existing home down 8.5 percent year-over-year
to $174,900. But as any good housing analyst will tell
you: Pricing lags sales and supply.
Indeed, if you recall what I said in my
May 8, Money and Markets column:
"I
still believe home prices have further
downside. That's because we remain oversupplied, with
approximately 1 million excess housing units for sale in
this country. More foreclosure inventory will likely hit
the markets in the coming months, too. Reason: Many of
the filing moratoriums put in place at the state and
industry levels have expired.
"But the sharpest declines in residential real estate
are, for now, mostly behind us. I expect to see sales
volumes gradually stabilize on a nationwide basis over
the coming year, with total inventory for sale (new plus
used) gradually coming down. By mid-to-late 2010, we
should see pricing stabilize and gradually turn higher,
with the improvement coming in stages depending on
location."
Buying New?
Not Lately ...
So
what about the new home market? It's taking a bit of a
breather. An index put out by the National Association of
Home Builders dropped to 18 in October from 19 in
September. Builders said present sales, expectations about
future sales, and prospective buyer traffic have all
declined.
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The new home market has slowed down a bit. |
Meanwhile, actual sales have missed expectations for two
months in a row. They dropped 3.6 percent in September to
a seasonally adjusted annual rate of 402,000. Economists
were expecting an increase to 440,000 units. Pricing
remains weak, with the median price of a new home off more
than 9 percent from a year ago to $204,800.
But
here's the thing: The supply picture in the new housing
market has dramatically improved!
At
the peak of the bubble, builders had 572,000 homes up for
sale. That was the highest in U.S. history.
The
dramatic cutback in production, combined with a general
uptick in sales, has driven that number all the way down
to 251,000. We haven't had this few homes on the market
since November 1982, almost 27 years ago.
Surprise, Surprise:
Government Policy Is
Distorting the Market ...
Why
are we seeing a divergence between the new and existing
markets? Like it is in so many other parts of the economy,
government policy is distorting things.
You
see, the $8,000 first-time home buyer tax credit is set to
expire on November 30. It applies to all transactions
CLOSED by that date. The typical closing of an existing
home takes about 30-60 days. So contracts signed as late
as, say, July, August and even early September, are
probably okay.
But
when you sign a contract to buy a NEW home, unless it's a
"spec" property, you're buying a plot of land. This means
you're looking at several months to build the house and
close. So we got the tax-credit-fueled surge in the new
home market EARLIER than the existing home market (June
sales rose 7.6 percent, while May sales climbed 7.5
percent).
Since then, some buyers have gotten more reluctant to jump
in because they fear they won't be able to close in time
to get their government handout ... er ... credit.
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An extension in the tax credit should keep the
housing recovery on track. |
But
— and this is important — Congress is now talking about
extending the credit into 2010. The latest scuttlebutt is
that the credit would now apply to all contracts
signed through April 30 of next year, with an
additional 60 days granted to close the
transaction.
Not
only that, but it may be expanded so that richer buyers
could qualify! If that happens, couples making up to
$225,000 would qualify, compared with $150,000 now. Plus
it would no longer apply to only first-time buyers. If
you've lived in your current home for at least five years,
you would qualify for a credit of up to $6,500.
Bottom line is that the government's massive housing and
mortgage market support measures show no sign of letting
up. In fact,
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The Federal Reserve is still buying $1.25 trillion of
mortgage securities to keep rates low.
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The FHA is now backing the same kinds of high-risk loans
that blew up private, high-risk lenders, allowing it to
capture the largest share of the mortgage market in
years.
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The "temporary" increases in the size of mortgages that
FHA, Fannie Mae, and Freddie Mac can insure have
essentially become permanent.
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And now, just as I forecast, the tax credit/handout is
almost sure to be extended well into the future.
You
don't have to like it. Frankly, I don't. But you do have
to appreciate the reality of the situation and understand
that it likely will keep the housing recovery on track.
It
won't be a linear process, though. Instead, I foresee more
of a "three steps forward, two steps back" scenario.
Until next time,
Mike |
