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  1. Altos Sees Housing Prices Decline as Supply Rises

    By on September 15, 2010

    Seems like they could've wedged a few more houses in there...

    Just a quick post to buttress some the things I’ve been saying about the housing market for the last several weeks, because I enjoy beating dead horses…

    From an Altos report via Reo Inventory, housing prices decreased a little over 1 percent from July to August.  The study was a composite of home prices in 10 major metropolitan regions in the United States.  Altos also found that inventory was rising as home listings were up .33 percent in August from July, and up over 2 percent from June.

    Presently, there is a 12.5 month supply of homes on the market, a number that looks to be increasing as more and more foreclosures are processed and moved through the system (there are estimates that another 4 million foreclosures could be on the way, with nearly 25 percent of Americans are upside down on their mortgages).

    Demand for homes has declined drastically since the expiration of the first time home buyer tax credit at the end of April.  The government stimulus served to accelerate purchases into the spring at the expense of the summer and fall.  Now we are seeing the hangover effect from that stimulus.

    The confluence of low demand and high supply means that home prices must fall (which is reinforced by a lack of income due to continued high unemployment).  That these conditions are occurring with mortgage rates close to record lows only reinforces how weak the housing market is.  Although the last S&P Case Shiller report saw home values rising, that report is a three month average with a two month lag.  Expect to see prices start to decline as the post-expiration numbers work their way into the survey in October and November.  Most analysts are calling for home prices to fall another 5-20 percent over the next year or more until we hit a true housing bottom.

    In order for the housing recovery to begin, we need to see the excess supply of housing get absorbed.  In order for that to happen, we need economic conditions that are favorable for household formation.  That will not occur until the labor market begins to improve.  This is going to be a slow process and it seems unlikely conditions will improve significantly in the near term.

    Category: General

  2. Housing Inventory Increases… Again

    By on September 8, 2010

    Supply? We have plenty of that.

    From an article by Nick Timiraos in today’s Wall Street Journal, we learn that the supply of homes on the market increased in August, the eighth straight month supply has risen.  This is not really news, but bears repeating simply because it is so important and reducing excess supply is the key to solving many of the housing problems our country faces.

    Reports from ZipRealty indicate that the average inventory in 26 U.S. metro areas increased 0.4 percent from the month prior.  Currently there is a 12.5 month supply of homes on the market (a normal market has 6 months of supply).  Housing inventory remains at an 18 month high.

    The real problem is that there could very easily be an even greater supply of homes on the market.  Demand for homes utterly collapsed after the expiration of the first time homebuyer tax credit at the end of April.  The lack of demand and huge supply inevitably leads to declines in home prices.  Right now there are millions of homeowners who are right on the verge of being underwater on their home (owing more on the mortgage than their home is worth).  Negative equity is one of the biggest causes of foreclosure.  Some estimate that further price declines could lead to as many as 4 million additional foreclosures.  This would lead to even more housing supply and possibly further prices declines.  It is easy to see how this situation could lead into a deflationary spiral.

    The key to revitalizing the housing market is figuring out how to absorb this overhang of supply.  The government needs to enact policy that would foster conditions favorable for increased household formation.  The first step would be policies that would create more jobs and put more people in the position to be able to start a household and possibly purchase a home.

    Category: Mortgage Rates

  3. Existing Home Sales Plummet To Lowest Level Since 1996

    1 By on August 24, 2010

    My best effort at summing up this report with a picture.

    According to the newest release from the National Association of Realtors (NAR), existing home sales collapsed in July, dropping 27.2 percent from the previous month, hitting the lowest levels since 1996.

    According to Lawrence Yun, Chief Economist for the NAR:

    “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs”.

    Where to begin with this statement… I guess I would mostly take issue with the last sentence, where he says that “the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs”.  This is similar to me saying that “the amount of money in my checking account could pick up quickly, provided I hit the lottery”.  It is a technically true statement that has little grounding in any sort of probable reality.  There is little to suggest that the economy is going to all of a sudden start adding jobs.  Almost everyone is saying this is going to be a protracted recovery, and the possibility of a double dip recession is very real.

    Additionally, there is now 12 months of supply on the market.  A normal market has less than 6 months worth of supply.  This number is especially bad.  It means a glut of homes will remain on the market, likely leading to further home price declines, decreased equity, and possibly more foreclosures as more people find themselves hopelessly underwater on their mortgages.

    I suppose if there is some sort of silver lining right now, it is that mortgage rates are incredibly low.  If you are already a homeowner, and you meet the qualifications, now would be a great time to refinance your home.  If you are going to buy a home despite the economy, you’re going to be able to lock in an extraordinarily low rate.


    Category: Mortgage Rates

  4. It Could Take 2.5-3 Years to Clear the Excess Housing Supply

    By on August 4, 2010

    That there is a big problem with excess housing in this country is not really news.  Yesterday we received some more information about the extent of the supply issue from an article by Robbie Whelan in the Wall Street Journal.

    Pending home sales have collapsed in recent months, down more than 30 percent over May and June following the expiration of the first time home buyer tax credit at the end of April.  According to statistics from the article, the country is on pace to see 3.7 million home sales this year, the lowest number since 1996, but for whatever reason, some home builders are still putting up new houses.  Mortgage rates are at all-time lows, but low rates are simply not prompting people to buy homes.

    Continue Reading…

    Category: Mortgage Rates

  5. Growing Housing Supply Fueled by Foreclosures

    3 By on July 27, 2010

    It seems as though the bad news for the economy and the housing market in particular just keeps coming.  Mortgage rates are lower than they have been since the 1950s but the economy is still at a standstill.  Consumer confidence is crumbling, and homeownership is at the lowest point in a decade.

    Now we learn that the housing supply is still growing. This is not exactly news, as this has been predicted for months as foreclosures remain high and more and more REO property makes its way to the market.  According to the cited article, 4.56 million mortgage loans were in default or foreclosure in June, and the number of new foreclosures started by Fannie Mae and Freddie Mac increased 21 percent from May to June.

    Some of the growing number of foreclosures can be attributed to the outright failure of initiatives like the Home Affordable Modification Program (HAMP) and the rising number of strategic defaults that largely arise from lost equity.

    Despite this, we are seeing additional new homes constructed by builders who purchased land in anticipation of a housing rebound.  When the rebound failed to manifest itself, builders decided to build and sell homes close to cost in order to get rid of the land.  Shockingly, new home construction is up over 60 percent in bubble areas like southern Florida, Las Vegas, and Denver.

    According to the excellent Calculated Risk Blog, we currently have an 8.9 month supply of homes on the market, and the number is going to grow.  Normally we have 6 months of housing supply on the market.  This does not include a lot of the shadow inventory that likely exists on banks’ asset sheets.

    None of this bodes well for home values.  While today’s S&P Case-Shiller House Price Index showed increases in most cities, that survey is a 3 month average with a 2 month lag, so it only really tells you what has happened, not what is or is going to happen.

    What do you think will happen to the housing market over the next several months? Let us know in the comments section below.

    Category: Mortgage Rates

  6. Housing Supply Increases 11.5 Percent in April

    By on May 24, 2010

    for-sale-signsAccording to a survey from the National Association of Realtors, The total U.S. housing inventory rose 11.5 percent in April, to a total of 4.04 million homes for sale. At the current sales pace, it would take 8.4 months for the market to absorb the supply.  The increasing supply does not bode well for home prices.

    The high water mark for housing supply was reached in July 2008, when 4.58 million homes were up for sale.  As lenders continue to work through a backlog of distressed and foreclosed properties, the supply could rise even higher. Nobody is entirely sure how much shadow inventory exists, but Barclay’s Capital estimates that 4.6 million borrowers are at least 90 days delinquent on their mortgage.  Barclays also estimates that more than 4.5 million distressed properties will be sold through the end of 2012.

    Additionally, we have seen evidence that the government programs designed to combat foreclosures have been relatively ineffective up to this point.  The Home Affordable Modification Program (HAMP) has enrolled 1.2 million borrowers since its inception, and has only produced approximately 300,000 permanent modifications.

    A recent Zillow survey found that 7 percent of homeowners were “very likely” to put their homes on the market in the next year if market conditions are favorable.  An additional 22 percent of homes owners were either “likely or somewhat likely” to put their homes on the market.

    This all adds up to a large number of houses that could come on the market in the next several years, with possible deleterious effects on home values if the rate of household formation or current sales paces do not increase.

    Do you think home values are going to increase?  Let us know in the comments section below.

    Category: FHA, Mortgage Rates

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