Our Changing Globe » housing market

Would Be Home Sellers Are Slashing Their Prices!

Michael Redbourn — Wed, 19 Aug 2009 11:43:02 +0000

And Home Prices Drop By Record Amount

According to the National Association of Realtors, whose records go back to 1979, the median U.S. price for an existing single-family home dropped a record 15.6% to $174,100 in the second quarter of this year.

But Home Sales Increased

Meanwhile, sales of new homes increased by 11% for new homes and 3.6% for existing homes, which suggests that it’s a buyer’s market, and that buyers are taking advantage of the falling prices.

The total dollar reduction was $27.8 billion, and the states that were hardest hit were Nevada (15%) and Florida (13%) and a quarter of would-be sellers lowered prices by around 10%.

Which States Reduced Had The Most Reductions?

Connecticut, Massachusetts, Rhode Island and Illinois had the highest share of homes with price reductions of around 33%.

Then came,

Oregon 29%, followed by,

Washington
New Jersey
Minnesota
New Hampshire
Maryland.

Which Cities Were Worst Hit?

Jacksonville, Florida 38%
Portland, Oregon 35%
Milwaukee, Minneapolis, Boston and Seattle 34%
Albuquerque, New Mexico, and Chicago 33%
Detroit; 16%
Las Vegas 15%
Miami 13%
New York City and Phoenix 12%
San Francisco and Los Angeles 10%

* Undeveloped land and foreclosed properties were excluded from the above estimates.

Will The U.S. Return To Its Former Glory?

Michael Redbourn — Sun, 12 Jul 2009 15:41:31 +0000

It’s hard to read an article about the present economic crisis without one pundit or another talking about when the U.S. will be fully recovered and they talk in depth about previous U and V shaped recessions, depressions and recoveries.

Those looking at a V shape believe that if the recession nosedived, which is one side of the V, then it should bottom out and quickly recover to its former glory, the other side of the V.

The U shapers believe that if a recession begins quickly, but then slows down, remains at the bottom for a while and then skyrockets back to its previous glory, that it is U shaped.

Which Are Right?

If you look at any of the previous recessions that were caused by the bursting of a huge speculative bubble, you will find that the recoveries took a long long time to come about, which suggests that the V shape believers are wrong in expecting a quick recovery from the present recession, because the economy cratered very quickly indeed.

Those that believe that we’re in a U shape right now are perhaps closer to the truth, because they believe that exiting from the present crisis will take a great deal of time.

U-shapers believe however, that what will drive the recovery is investors that slowly come back into the market to take advantage of the low prices.

This recession is so deep however, that it’s not investors that will have to bring about some kind of recovery, but consumers, and right now they’re not playing ball.

Consumers account for around 70% of the U.S. economy and they’re the ones that took a real beating this time, and until they start spending you can forget about any serious kind of recovery.

What, No V Or U Shaped Return To Former Glory?

The two chances of regaining what once was, are probably slim and nothing.

So When Will Consumers Start Fueling The Recovery?

The question might be better phrased, “how will consumers start fueling the economy?”.

The growing line of unemployed won’t fuel it, and householders will have a major problem getting home equity loans and perhaps worst of all, those that do have a little cash are intent on keeping it, and we just saw consumer confidence take another dive.

The probable truth is that America has seen the end of its economic, and perhaps its military hegemony, and Obama for right or wrong, certainly doesn’t want a return to either them.

America is surviving on loans right now, and will be for the foreseeable future.

The Chinese have a two billion dollar surplus, and will soon demand higher returns on their investment in the U.S. because they see it as overburdened with debt and that will only increase the U.S.’s debt mountain.

Americans will replace worn out cars and appliances of course, but who will invest in factories and businesses that build those things?

The original question was;

Will the U.S. Return To Its Former Glory?

The answer is almost certainly ‘no’, and a Scottish historian by the name of Professor Alexander Fraser Tyler, who wrote in 1787 about the decline and fall of the Athenian Republic over two thousand years before, perhaps explains it best.

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”

“The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence:

From bondage to spiritual faith
From spiritual faith to great courage
From courage to liberty
From liberty to abundance
From abundance to complacency
From complacency to apathy
From apathy to dependence
From dependence back again into bondage”.

News Just In Says Suggests That A Recovery Is Likely

Michael Redbourn — Sun, 24 May 2009 19:21:07 +0000

I couldn’t help but wonder if journalists were clutching at straws when I read stories today that said things similar to, “Orders for durable goods and home sales probably rose in April as the worst U.S. recession in at least half a century started to loosen its grip”.

What do they mean “probably rose”?

Surely, they did or they didn’t.

Sifting through the reports the good news was;

Orders for goods meant to last several years increased 0.4% making it the second gain in three months.

Combined sales of new and existing homes probably advanced to a 5.02 million annual rate from a 4.93 million pace in March, but again the reports say “probably”.

If true, and not “probable” then the above is good new but a stabilization in housing and manufacturing would help the present economic slump since they are the two areas suffering the biggest contractions. It won’t be possible to maintain these gains however unless banks loosen their purse strings, if unemployment continues to rise.

Surveys suggest that the sales of existing houses, which account for more than 90% of the market, rose 2% in April to a 4.66 million annual rate from a 4.57 million rate and Commerce Department figures are expected to show that new-home sales increased 1.1% to a 360,000 annual rate.

David Resler, who is the chief economist at Nomura Securities International Inc. in New York added to the “probables” and “expecteds” by saying “Evidence that the 16-month recession is coming to an end continues to build. Home sales and building activity seem to be stabilizing and manufacturing surveys point to smaller production cuts and smaller job losses”.

A spokesperson for Toll Brothers Inc., the largest U.S. builder of luxury homes, said last week, “That signs were beginning to emerge that the worst was over”, and “We believe the U.S. government’s forceful intervention in the capital markets has begun to restore some confidence that the financial system is on the road to stabilization”.

So the pundits are now telling us that the recovery is, “probable”, “expected” and “suggested”, and I hope that what they see is their glass balls is correct and that it will all happen soon, but I’d have liked to have seen more definitives.

U.S. Housing Starts Unexpectedly Fall To Record Low

Michael Redbourn — Tue, 19 May 2009 19:50:12 +0000

Just released Commerce Department figures indicate that U.S. housing starts dropped to a record low of 458,000 in April.

A 13% decline to an annual rate of 458,000 was led by a 46% decline in multi-family starts, compared to March when builders broke ground on 525,000 homes.

Building permits, which are a sign of future construction fell by 3.3% to a record low rate of 494,000 and taken together the two declines suggest that house prices have not yet reached rock-bottom.

So called experts had forecast an increase to a 520,000 annual pace from a 510,000 previously estimated pace the prior month, and they also forecast that building permits would increase to 530,000 annual rate.

But to give credit where it’s due, Maxwell Clarke, who is the chief U.S. economist at IDEAglobal Inc said even before the report came out that, “Weakness in housing continues. Declining prospects for developers should continue to act as a drag on investment and overall output in 2009″.

Mixed in with the bad news was a little good news however, because construction of single-family homes rose 2.8% to a 368,000 rate, and that was for the second straight month.

Overall the housing market is showing some signs of stabilization and confidence amongst U.S. homebuilders in May increased to the highest level since September, and although sales of new homes are still 70% below their 2005 highs, they have risen slightly from their record January lows.

U.S. Fixed Mortgage Rates Continue To Drop

Michael Redbourn — Sun, 26 Apr 2009 09:11:18 +0000

The Federal Reserve Bank’s plan to buy mortgage-backed securities in order to drive down interest in the U.S. appears to be working, as fixed mortgage rates fell for a second consecutive week, and the number of mortgage applications rose, boosted by an increase in refinancing applications.

Freddie Mac reported that the rate for a 30-year fixed home loan fell to 4.80 percent from 4.82 percent a week earlier, whilst the 15-year fixed rate remained unchanged at 4.48 percent.

The central bank is attempting to drive down interest rates by cutting the supply of outstanding mortgage bonds, thereby boosting their price and lowering their yields, thus allowing banks to reduce their rates on new mortgages, whilst continuing to sell mortgage securities at a profit.

Celia Chen, who is the senior director of Moody’s, Economy.com commented, “The policy is working. Mortgage interest rates are falling to a record low, which will stimulate some buying of homes”.

The not so good news is that sales of previously owned U.S. homes fell in March, after climbing by the biggest amount in more than five years just one month earlier.

Purchases decreased by 3% to an annual rate of 4.57 million, which was lower than the 4.71 million which was forecast, and prices were down 12% from a year ago, with distressed properties accounting for about 50% of all sales.

Home Prices Higher In February Than In January

Michael Redbourn — Fri, 24 Apr 2009 07:24:28 +0000

The gain in U.S. house prices of .7% in February is the first consecutive monthly gain in two years, and is interpreted by some, but not all experts, as a sign that an end to the real estate slump might sight.

The February prices were still 6.5% lower than a year earlier and were pretty much in line with estimates, and also a recent statement by Federal Reserve Vice Chairman Donald Kohn, “As demand firms, and once inventories of houses, and a broad range of goods are brought into line with sales, economic activity should begin to stabilize,”

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased by 5.3% last week and a National Association of Realtors report notes that home sales rose by 5.1% in February.

The number of Americans that signed contracts to buy previously owned homes rose by 2.1% in February, which was led by a 14.5% jump in the Midwest, and a 10.6% increase in the Northeast.

The California and Florida metropolitan areas led the U.S. in foreclosures in the first quarter of this year, and Bruce Norris, who is a principal with the Norris Group said, “Whatever damage has been done in California is only going to get worse because there is a glut of homes owned by lenders that aren’t yet on the market. These homes are like a shadow inventory that is likely to drag down prices further when they come onto the market”.

Norris’s comments are supported by comments on the National Association of Realtors website which states, “U.S. home prices probably will fall 5.1% this year to $188,500, less than the 9.3% plunge in 2008, according to the real estate group. Home resales probably will rise 1% to 4.96 million after a 13% drop last year”.

As Stocks Advanced The Number Of Defaulting Homebuyers Rose By 50%

Michael Redbourn — Wed, 22 Apr 2009 10:24:33 +0000

Consumer confidence is important, but what should we believe when one headline tells us that, “The banks have enough cash”, whilst another screams, “Mortgage delinquencies among the most creditworthy homeowners rose by 50% last month”.

After Treasury Secretary Timothy Geithner said, “the vast majority of the nation’s banks have enough capital”, U.S. stocks advanced the most in almost two weeks, and Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset said, “Geithner’s comments that most banks are OK got money coming back into stocks because that pretty much allays yesterday’s fears about stress tests and banks having to raise more capital”.

Even General Motors Corp. rose 2.4 percent to $1.70 after a government auditor said the Treasury will supply the automaker with $5 billion in additional aid.

Meanwhile, David Heupel, who helps manage $60 billion at Thrivent Financial for Lutherans said, “There are still signs of a tough economic environment, but companies that have really cut down their expenses are starting to see a little glimmer of life”.

The “tough economic environment” part of his comment would appear to be something of an understatement however, because the number of so-called prime borrowers who are at least sixty days behind on mortgages owned or guaranteed by Fannie Mae and Freddie Mac rose to 743,686 in January, from 497,131 in December, and that’s almost double the October total.

Fannie Mae and Freddie Mac who are the biggest U.S. mortgage-finance companies, either owning or guaranteeing 56% of all U.S. home loans, just announced that mortgage delinquencies among their “most creditworthy homeowners”, rose by 50% in just one month, and they blamed the fall on both drops in income and too much debt, with 34% of borrowers telling Fannie and Freddie that they were earning less money, and around 20% citing too much debt as their reason for missing their mortgage payments, with a further 8.1% blaming unemployment.

The ‘Loan Modification Program’ Finally Gets Underway.

Michael Redbourn — Thu, 16 Apr 2009 10:26:52 +0000

The Treasury Department finally announced on Wednesday, April 4th the names of the first six banks that will get massive government subsidies.

The names of banks and what they’ll be getting are;

• JPMorgan Chase – $3.6 billion in subsidy and incentive payments
• Wells Fargo – $2.9 billion
• Citigroup – $2 billion
• GMAC Mortgage, $633 million
• Saxon Mortgage Services, $407 million
• Select Portfolio Servicing, $376 million

The government’s program was announced on February 18th but specific details have only just become available, and the delay caused major frustration amongst housing counselors and distressed homebuyers.

The stated aim of the program is to help as many as nine million borrowers to stay in their homes, and Wells Fargo recently said in a statement, “We view this modification program as yet another incremental opportunity for thousands of homeowners to preserve and maintain the dream of homeownership”.

The two-part plan requires servicers to either reduce monthly payments to no more than 31% of an eligible borrower’s pre-tax income, or to refinance eligible mortgages, even if the homeowner has little or no equity.

The government has so far allocated $75 billion, to subsidize a part of the payment reduction, and it will also provide tens of thousands of additional dollars in incentives to participating servicers and borrowers.

Servicers will receive $1,000 for each loan modification, plus another $1,000 a year for three years if the borrower stays current. On top of this, the government will provide an additional $500 to servicers, and $1,500 to mortgage holders if they modify their at-risk loans before the borrower falls behind.

Homebuyers will get up to $1,000 a year for five years if they keep up with their payments, and the money will be used to lower their loan principals.

When asked “Where all this money come from?”, Treasury spokesman Andrew Williams answered, “We’re confident we’ll have enough money”.

Home Prices in U.S. Expected to Fall Through 2010

Michael Redbourn — Thu, 02 Apr 2009 09:10:34 +0000

According to a just published, PMI (Private Mortgage Insurance Co.) interview, “Home prices will fall in more than half of the largest U.S. cities through 2010, as the recession slashes jobs and reduces buying power”.

PMI, is the second largest U.S. mortgage insurer and the company’s chief economist, David Berson, said “21 of the 50 biggest U.S. metropolitan areas have more than a 75% chance of lower home prices in two years. Six others have more than a 50% chance. Prices will lag because of the large number of homes for sale and those that are vacant but not yet on the market, and we’ll see sales start to recover before the job market”.

The present economic collapse was caused by subprime lending to the riskiest U.S. mortgage borrowers, which in turn fueled a five-year housing boom and drove the median U.S. home price to an all-time high of $230,000 in 2006. The housing collapse led to more than $1 trillion in write-downs and credit losses, by the financial institutions that packaged the toxic loans into securities, and then sold them to investors.

Stats issued by the Chicago-based National Association of Realtors show however, that a record number of foreclosures have so far forced overall prices down by 28%, bringing the average price of a house down to $165,400.

Berson went on to say that, “The ten areas with the highest probability of lower prices in 2010, each with a 99 percent chance, include Miami, Fort Lauderdale, Tampa, Orlando and Jacksonville in Florida; Los Angeles, Riverside and Santa Ana in California; Las Vegas and Phoenix. Risky lending and speculators in “sand states” led to rapid property appreciation that is now correcting. The suburbs of New York and D.C. are high-cost areas that had substantial run-ups in prices. They are the next group down from the sand states”.

In depth figures indicate that New York City has a 67% chance of declining prices, whilst Portland, Oregon; Minneapolis-St. Paul; Boston; Atlanta; and San Jose, California all have between a 50% and 70% chance of declining prices.

The city most at risk is New Jersey, and the Edison-New Brunswick area has an 89%, and Newark an 84% likelihood of lower prices over the next two years. Nassau-Suffolk in New York has a 78%; Washington an 88% and Baltimore has an 84% chance.

The areas that are least likely to suffer a drop in house prices are Pittsburgh; Cleveland; Columbus, Ohio; Dallas; Houston and Memphis, Tennessee which is mostly because prices didn’t surge so much or at all during the boom.

Our Economy – When Even The Ugly Looks Pretty.

Michael Redbourn — Sat, 28 Mar 2009 06:05:45 +0000

The American consumer cut back so much during the last quarter of 2008, that two recent reports showing that a slight leveling off had occurred in February and March caused many supposed economic pundits to suggest that a bottoming out had occurred and that it was possible to see a light at the end of the tunnel.

The cause for such jubilation?

The Commerce Department announced a rise of 0.2% in consumer spending in February, and the University of Michigan’s index of consumer confidence edged up slightly in March, whilst remaining at near historic lows.

Richard T. Curtin, who has run the University of Michigan survey for decades, said in a just published report, “The good news is that the free fall in confidence has ended. The bad news is that consumers expect their financial situation to remain dismal for the rest of 2009″.

Not only were the increases miniscule, but there were obvious reasons for them. Spending was higher due to higher gasoline prices, and the fact that personal income fell by 0.2% in February got scant attention, even though it most likely means that consumers will have to cut back even further on purchases.

House prices are still falling, the stock market is way down for the year and unemployment continues to rise, but there are a number of economists who believe that consumers who are still delaying the purchase of major items such as a house, a car, or new appliances will soon be forced into buying them, which will in turn create a bounce in the broader economy.

It is totally unclear to me however why the consumer will suddenly feel that he must buy a new car, a new house or a new appliance etc. and I would strongly agree with Howard Davidowitz, who is the chairman of the retail consultancy Davidowitz & Associates who said, “When you’ve got exploding job losses like we have, how would that lead to any improvement in consumer spending? If you don’t have jobs, you cannot possibly have a change in psychology”.

Perhaps ironically, if the consumer’s confidence and appetite do grow, it could well create new problems because the purchasing of big-ticket items in large numbers could create a snap-back in gross domestic product, followed by another recession because of business conditions that are still extremely weak, companies that are still not investing, and weakness in the rest of the world’s economies.