Foreclosure Activity, Homebuilder Confidence, And The Road Ahead….
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Home sales have now posted year-over-year gains in each of the last nine months. But in almost all of those months, the number of homes for sale has declined. On Thursday, the National Association of Realtors reported that inventories fell by 1.3% in March, leaving inventories 21.8% below their year-earlier levels.
“Buyers have come out early, but sellers haven’t,” said Mark Vitner, senior economist at Wells Fargo & Co.
What’s going on here? March typically marks the start of the peak spring sales season.
Here are three reasons to explain why inventories have fallen:
With prices down by one-third from their peak (and by much more in the hardest hit housing markets), who wants to sell a house right now if they don’t have to? That’s especially true for the roughly 15% of homeowners who are underwater on their mortgage.
Banks have decelerated the foreclosure process after they were caught routinely passing off bogus documents to demonstrate ownership. That has slowed the pace at which they’re putting homes back up for sale.
While investors initially were buying up foreclosures that could be fixed and flipped, or resold, for a quick profit, over the past two years, more investors have been buying inexpensive homes that can be rented out. Those homes are out of the for-sale pool for the near-term.
The first two reasons would imply that the downturn in listings is somewhat artificial and possibly temporary, and that inventories will pick up when prices begin to rise and when banks sort out their back-office operations. But the role of investors in today’s market could make the drop more lasting.
The Realtors’ report also showed that the West was the only part of the country to see a year-over-year drop in sales during March. That drop was concentrated almost wholly in properties priced below $100,000, where sales were down by 19%.
There are a few reasons this could be happening right now: there may just not be as many of these homes to buy any more, as the worst of the foreclosures have been sold or as prices have been bid up above $100,000.
The U.S. housing market is showing more signs of stabilization as price declines ease and home demand improves, spurring several economists to call a bottom to the worst real estate collapse since the 1930s.
“The crash is over,” Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester,Pennsylvania, said in a telephone interview yesterday. “Home sales — both new and existing — and housing starts are now off the bottom.”
Data released yesterday showing better-than-estimated new- home sales and a slowdown in price declines are bolstering optimism that the market is poised for a sustainable recovery. Economists including Bank of Tokyo-Mitsubishi UFJ’s Chris Rupkey, Bank of America Corp.’s Michelle Meyer and Mark Fleming of CoreLogic Inc. are also predicting prices are close to a trough after a 35 percent slump from a July 2006 peak, even as the threat of more foreclosures loom to boost supply.
Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, the S&P/Case-Shiller index showed yesterday. The Federal Housing Finance Agency’s home-price index, which measures properties with mortgages backed by Fannie Mae or Freddie Mac, had a 0.4 percent rise for the same period, according to a separate report.
New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, the Commerce Department said. The median estimate in a Bloomberg News survey forecast a rate of 319,000. The pace of sales for February was revised upward to 353,000, a two-year high.
Consumer Confidence
A report on consumer confidence yesterday showed the most important signal that housing can only go up, said Rupkey, chief financial economist for Bank of Tokyo-Mitsubishi in New York. The Conference Board said its confidence index was at 69.2 in April, compared with a revised 69.5 in March. Beneath the headline number, an important indicator was that consumers said jobs are easier to find, Rupkey said.
“Today’s consumer confidence shows labor markets recovering and that confidence is going to allow consumers to go out and buy homes,” Rupkey said in a telephone interview yesterday.
The National Association of Realtors probably will say tomorrow that the number of Americans signing contracts to buy previously owned homes rose 1 percent in March, according to the median estimate of 43 economists surveyed by Bloomberg. That would put the pending home-sales index close to a two-year high.
Foreclosure Supply
While the volume of sales has increased, prices still have a way to fall because as many as 6 million homes with delinquent mortgages and in the foreclosure process are likely to come to the market, Scott Simon, head of mortgage- and asset-backed debt at Newport Beach, California-based Pacific Investment Management Co., said yesterday on Bloomberg Television.
“We think we’d go down another 3 or 4 percent over the next 12 months, probably bottoming sometime next year,” Simon said on “Surveillance Midday” with Tom Keene. “One month doesn’t change anything.”
Robert Shiller, a Yale University economics professor and co-creator of the home-price index, also said prices may be poised to fall further.
“I’m more concerned about the downside than most people,” Shiller said yesterday on Bloomberg Radio. “I could see it staying languishing and edging down for years.”
Rising Home Seizures
Foreclosure filings in the U.S. fell in the first quarter to their lowest level in more than four years after lenders under legal scrutiny slowed actions against delinquent homeowners, according to RealtyTrac Inc. Home seizures will increase as banks work through the backlog following a settlement by loan servicers over faulty mortgage practices, the Irvine, California-based data firm forecasts.
Meyer, senior economist with Bank of America in New York, said the recovery will be led by the parts of the country with fewer foreclosures and more job growth. She estimates that U.S. prices will reach bottom this year and stay little changed until 2014, when they may gain about 2.5 percent.
Home values in more than half of major U.S. markets will probably reach a bottom by the end of the year, according to Seattle-based Zillow Inc. Signs that the market is close to a trough include improving home sales and rising prices in some areas, said Chief Economist Stan Humphries. The market, which has been bolstered by investors, second-home buyers, and retirees, will need more traditional first-time and trade-up buyers to return for a rebound, he said.
‘Healing’ Market
“I characterize 2012 as a year in which the market is healing and the bottoming process is playing out,” Humphries said in a telephone interview.
Median prices averaged 5.8 percent higher in March than a year earlier in 53 metro areas surveyed for a monthly housing report by Re/Max LLC, the Denver-based company said in an April 16 report. It was the second consecutive month that home prices increased year-over-year and the ninth straight month of higher sales volume, according to the report.
“This year’s selling season is shaping up to be the strongest we’ve seen in years,” Margaret Kelly, Re/Max’s chief executive officer, said in a statement. “Although we don’t expect home prices to rise in every market at the same rate, the worst is definitely behind us, and a slow, steady recovery is taking hold.”
U.S. home prices compiled by CoreLogic, a Santa Ana, California-based real estate information service, had month- over-month gains in January and February when sales of distressed properties were excluded, said Fleming, the company’s chief economist.
“It’s just a matter of months before we get positive year- over-year numbers in the overall index,” Fleming said in a telephone interview from Washington. “Our data lags the reality. The turnaround is happening in the March, April and May time frame.”
Year-Over-Year Declines Continue at a Decreasing Rate
Excluding distressed sales, month-over-month prices increased 0.7 percent in February from January. The CoreLogic HPI also showed that year-over-year prices declined by 0.8 percent in February 2012 compared to February 2011. Distressed sales include short sales and real estate owned (REO) transactions.
The report also shows national home prices, including distressed sales, declined on a year-over-year basis by 2.0 percent in February 2012 and by 0.8 percent compared to January 2012, the seventh consecutive monthly decline.
Highlights as of February 2012
- Including distressed sales, the five states with the highest appreciation were: West Virginia (+8.6 percent), Michigan (+5.8 percent), Florida (+4.7 percent), Arizona (+4.5 percent) and South Dakota (+4.1 percent).
- Including distressed sales, the five states with the greatest depreciation were: Delaware (-11.2 percent), Connecticut (-7.9 percent), Rhode Island (-7.8 percent), Illinois (-7.1 percent) and Georgia (-6.6 percent).
- Excluding distressed sales, the five states with the highest appreciation were: South Dakota (+5.9 percent), West Virginia (+5.6 percent), Maine (+4.5 percent), Utah (+3.7 percent) and Montana (+3.6 percent).
- Excluding distressed sales, the five states with the greatest depreciation were: Delaware (-8.7 percent), Connecticut (-4.9 percent), Nevada (-4.6 percent), Vermont (-4.0 percent) and Minnesota (-3.3 percent).
“House prices, based on data through February, continue to decline, but at a decreasing rate. The deceleration in the pace of decline is a first step toward ultimately growing again,” said Mark Fleming, chief economist for CoreLogic. “Excluding distressed sales, we already see modest price appreciation month over month in January and February.”
*January data was revised. Revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results.
Click here to download the full February 2012 HPI data report >>
Most Current, Most Comprehensive HPI Data
CoreLogic HPI monthly updates offer the quickest HPI collateral valuation information in the industry—complete HPI datasets five weeks after month’s end—and leverage the full authority of CoreLogic’s industry-leading real estate databases, covering 6,669 Zip codes, 618 Core Based Statistical Areas (CBSAs), and 1,163 counties in all 50 states and the District of Columbia.
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| CoreLogic HPI covers 6,669 ZIP codes, 618 Core Based Statistical Areas (CBSA) and 1,163 counties in all 50 states and the District of Columbia. |
HPI for the Country’s Largest Core Based Statistical Areas (CBSAs):
|
February 2012
12-Month HPI |
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|
Change by CBSA
|
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| CBSA |
Single
Family |
Single Family
Excluding Distressed |
| Chicago-Joliet-Naperville IL |
-7.3%
|
-3.8%
|
| Atlanta-Sandy Springs-Marietta, GA |
-6.5%
|
-2.5%
|
| Los Angeles-Long Beach-Glendale, CA |
-4.4%
|
0.2%
|
| Riverside-San Bernardino-Ontario, CA |
-3.2%
|
-0.9%
|
| Philadelphia PA |
-2.4%
|
-1.1%
|
| Washington-Arlington-Alexandria, DC-VA-MD-WV |
0.2%
|
2.1%
|
| New York-White Plains-Wayne, NY-NJ |
0.3%
|
1.0%
|
| Houston-Sugar Land-Baytown, TX |
0.6%
|
2.9%
|
| Dallas-Plano-Irving, TX |
1.9%
|
1.2%
|
| Phoenix-Mesa-Glendale, AZ |
7.0%
|
3.9%
|
Source: CoreLogic
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