Interest Rates:  Flat

For two weeks now, interest rates are flat, according to the most recent survey by Freddie Mac. The 30 year fixed mortgage rate was unchanged at 4.5%. Last year at this time the 30 year fixed mortgage rate averaged 4.69%. The 15 year fixed mortgage rate was up slightly this week to 3.69% over last weeks 3.67%.

Flat interest rates were attributed to a flat news in the housing market. New construction on single family homes was up slightly in May but still below 2010′s pace.  Existing home sales were lower as housing still struggles to find momentum.

Interest rate chart below:

Interest rates are well below last year’s rates showing the economy remains sluggish.  This is good news for investors and home buyers who are able to get financing to buy property.  Low interest rates coupled with depressed home prices are allowing investors to lock in their debt service near record lows.  In doing so, as rents rise and inflation occurs with a recovering economy, investors  will likely see increased cash flows in the future.

Existing Home Sales Decline

Sales of existing homes fell 3.8% in May versus April and are now over 15% below last year’s pace, according to the National Association of Realtors.  The year-over-year drop in home sales stems from the homebuyer tax credit nearing the end of its cycle, causing sales to boom last May.

Distressed sales accounted for 31% of all existing home sales in May, down from 37% in April and on par with 31% in May 2010. Cash transactions accounted for 30% of existing home sales in May, down slightly from April’s 30%,  still much higher than Mays 25% in 2010.  First-time home buyers accounted for 35% of sales in May, down slightly from April’s 36%.  This is down significantly from last year when the home buyer tax credit was in force.  At that time, first time buyers accounted for 46% of existing home sales. Investor interest may have peaked. Investors accounted for 19% of existing home sales in May compared with 20% in April.  Last May they were 14%,  but has been have been as high as 23% in winter 2010.

Total inventory dropped by 1% to approximately 3.7 2 million existing homes on the market.  At the current pace the inventory represents a 9.3 month supply, up from a 9 month supply at the end of April.

The pace of sales continues to be very slow.  This slow pace is causing this the supply to look as if inventories are increasing when in fact they are decreasing.  Despite the declining overall inventory this slow-paced of sales is very concerning and will likely mean that conditions will not improve anytime soon.

New Home Sales: Uptick

Year-over-year new home sales were up in May to a seasonally adjusted annual rate of 319,000 according to the US Census Bureau. This represents a 13.5%. increase over May 2010.  The pace is 2.1% below April’s  pace of 326,000.  The new construction market has been hit especially hard by the crisis. Home builders remain very un-confident according to NAHB’s latest survey.

We should be seeing new home sales recovering but unfortunately builders are still unable to get financing.  Many of my banker friends are still sitting on vacant lots they took back from builders 2-4 years ago.  This makes a poor case for new lending.  Banks can liquidate finished product much quicker than land.

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The Week in Housing: Existing Home Sales, Interest Rates, and New Home Sales

New Construction – Housing Starts

The Census Bureau reported that housing starts were up for the month of May to a seasonally adjusted annual rate of 560,000.  This represents a 3.5% increase from April but is still 3.4% below May 2010’s pace of 580,000.

New Construction – Building Permits

Building permits were also up in May 8.7% higher than April to a seasonally adjusted annual rate of 612,000.  Building permits were also up year-over-year by 5.2%.  Single-family permits were up 2.5% in May over April to a rate of 405,000.

New Construction – Housing Completions

Completed homes inched up 0.4% in May to a seasonally-adjusted annual rate of 544,000 over April, but are off 22.5% from last May’s 702,000.

Permits are the furthers leading indicator of the group and this projects a better finish to home building in 2011 and a better start to 2012.  Builders are still crippled from a financing perspective, finding it very difficult to get loans to start building again.

On the contrary, some communities are doing very well.  Here’s a list of the top 10 selling communities in the US:

Interest Rates Stabilize

Interest rates found footing this week.  Freddie Mac reported the 30-year fixed rate rose just 0.1% to 4.50% for the week ending June 16^th,2011.  A year ago the 30-year fixed averaged 4.75%.  The 15-year fixed rate eased 0.1% to 3.67%.  Last year at this time the 15-year fixed averaged 4.20%.

The main reason interest rates were mixed this week was inflation reports that came in near consensus estimates.   Also with the European debt crisis closer to another bailout, markets seemed to be more stable this week.  Investors seem hopeful that Greece, Portugal, Ireland, and other nations with sovereign debt crises will be resolved.  This attention will focus on our own nation and we’ll to deal with the higher cost of borrowing.  That coupled with inflationary pressures will cause rates to rise.  In the meantime, investors should take advantage of these low rates.

Builder Confidence:  Gutter

The National Association of Home Builders released its Housing Market Index which scores builder confidence.   The index showed a steep decline in builder confidence for the month of June.   The level now a 13, down from a 16 in May, is the lowest reading since September 2010.

Not only to do builders now have to deal with difficult financing conditions and falling home prices, they now have rising building costs as demand from foreign markets pushes material costs higher. People shopping for new homes are having to deal with difficulty in selling their own properties in order to move into a new home.

As you’ll see from this chart (courtesy Bill McBride over at Calculated Risk), the relationship between builder confidence and housing starts:

Summary:

Conditions remain week in the housing market with lower home prices, weak home building prospects, and low confidence.   On the positive side, the overall on and off market inventories should continue absorbing, though I imagine we’ll see listings rise on the coming week’s Existing Home Sales Report.  Low interest rates are providing some relief for those who can qualify for mortgages to either refinance and free up cash flow, or those who are able to relocate.

Investors who have the ability to buy are doing so as they still represent 20% of the market.  I’m now seeing a big wave of foreign buyers coming into the market buying for yield and potential upside as they see the US market near a bottom.

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The Week in Housing: New Construction Report, Interest Rates, Builder Confidence

Rates Slide as Economy Weakens

Following a poor performance in the labor market, interest rates fell for the week ending June 9^th, 2011.  The economy added just 54,000 new jobs in May much less than analysts expected and the unemployment rate increased to 9.1%.  The economic recovery is running out of steam and factories cut payrolls for the first time in 7 months.  Treasury yields followed suit causing interest rates to decline yet again this week.

Freddie Mac reported that the 30-year fixed mortgage rate fell to 4.49% from 4.55% the prior week.  A year ago the 30-year fixed averaged 4.72%.  The 15-year fixed rate fell to 3.68% from 3.74% the prior week.  A year ago it stood at 4.17%.

Interest rate chart:

The low interest rate environment has been a boon for real estate investors.  By locking in long term low rates in an environment with rising rents, cash flows should rise over time.  But how long will the low rates last?  I’ve been calling for higher rates by the end of the year.  Will this hold true?  If the economic recovery continues to falter we may see low rates for an extended period of time.  Long term rates will rise as the cost of the US borrowing will eventually rise as we have to address the rising US debt.

CoreLogic’s Q1 2011 Negative Equity Report

CoreLogic released its first quarter Negative Equity Report last week.  The report states that the number of homes in a negative equity position declined from 11.1 million homes at the end of 2010 to 10.9 million homes at the end of the first quarter, 2011.  This represents approximately 22.7% of all homes.  Additionally 2.4 million homes had only 5% equity which places them ‘near negative’ due to falling home prices.

Also the report shows the areas with the most negative equity:

In Nevada 63% of mortgaged homes are in a negative equity position followed by Arizona (50%), Florida (46%), Michigan (36%), and California (31%).

With negative equity still a huge problem throughout most of the US, more foreclosures are still on the horizon.  What’s worse, recent home price declines put many of those who gained some equity in the past year, back into negative equity positions.  People are more likely to default when they have negative equity.  Because of this the state of the housing market is still precarious.

Survey, Housing Confidence Up

According to a recent survey by Genworth Financial shows that Americans have some confidence at least in affordability of housing:

• 62% felt that now is a good time to buy a home.
• 82% of the those feeling now was a good time to buy a home said there was a good supply of property and home prices were low.

Some of the concerns:

• 51% the US respondents had a negative outlook on the US economy.
• 48% were concerned about their household finances, 20% were extremely concerned.
• 88% of those concerned about their household finances stated it was due to the rising cost of fuel.
• 46% of Americans were worried about falling home prices

While the survey shows that some optimism exists due to low interest rates, available inventory, and low costs, people are still stressed about the economy and their own finances.  That leads to limited purchasing activity.  I think this really shows that despite record affordability conditions in housing, people are simply too concerned to purchase a new home.

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The Week in Housing: Lower Rates, Negative Equity, and Homeowner Confidence

Home Prices are busted

The most closely watched indicator of home prices, S&P’s Case-Shiller Home Price Index, fell below its April 2009 low to solidify the case for an official double-dip.   For the month ending March 2011, 19 out of the 20 cities in the index saw price declines.  Washington D.C. was the only market to eek out a gain on both a monthly (+1.1%) and an annual basis (+4.3%).   Minneapolis saw a 10% decline for the year, revealing that the housing crisis is being felt hard in the Midwest.  The quarterly annual decline for the index was 5.1%.

Case-Shiller:

Contrary to the continued decline in home prices is the prosperity in Washington, D.C.  The government seems to be booming.  Unfortunately majority of the US is experiencing rising unemployment and faltering recovery.

Will Interest Rates Save Us?

If the easy money supply was working, we might be seeing more activity in the housing market.  Unfortunately easy money and low interest rates need to meet consumer confidence in order for that strategy to work.  According to Freddie Mac, the 30-year fixed dropped again to 4.55% from 4.6% for the week ending June 2^nd, 2011.   A year ago the 30-year fixed stood at 4.79%.  The 15-year fixed fell to 3.74% from 3.78% this week.  A year ago the 15-year fixed stood at 4.20%.

Interest Rate Chart:

Rates continue to be weaker but we’re seeing the little in the way of progress with loan activity.  Do we really have to wait until jobs come back before the housing market recovers?

Housing’s Salvation:

The salvation in the housing market will come down to one factor; supply and demand.  The supply of homes is dwindling.  While it’s unlikely that you see this, maybe you feel it.   Excess supply could be as low as 1.2-1.4 million units, down from 1.8  million at the end of 2010.   Home building is on pace to deliver another 350,000 homes this year about 1.25 million short of what is needed to keep up with population growth.

While the system is jammed with tons of foreclosures and short sales, when housing comes back it will be big.  For now, we have to deal with the present situation.  In the not-so-distant future we will see a housing shortage.  The shortage will ripple throughout the US around 2014-2015 when the excess supply is non-existent and real demand for housing (both ownership and rental) returns to the market.   Rising rents are the first sign of this shortage.

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The Week in Housing: The Double-Dip; Where do we go from here?

This week we cover the pending home sales release from the National Association of Realtors, new home sales, interest rates, and news on delinquency.

Pending Home Sales Hit Skids

The National Association of Realtors (NAR) reported pending home sales plunged 11.6% in April.  Year-over-year pending home sales are down 25.6% when the second home buyer credit was at its peak.

Lawrence Yun, chief economist for the Realtors, said a combination of rising gas prices, severe weather, and a weaker economy contributed to the significant drop in contract signings. The moth-over-month drop in April is important because at this time of the year, contract signings should be in full swing.  I believe the higher gas prices had the biggest impact on the consumer.  Just as people are starting to feel better about the economy, incomes are being sapped by higher fuel costs.  Higher fuel costs can make people rethink their housing situation and commute times.

Record Low:  New Home Sales

The Census Bureau reported new home sales stood at a seasonally adjusted annual rate of 323,000.  This is 23.1% below April of 2010, but 7.3% above March 2011.   This represents a record low for the month of April.

Unfortunately the Census Bureau has a 16.6% margin of error.  Despite the margin of error new home sales are still in the doldrums. Builders are having a difficult time obtaining financing several years into the crisis. Many areas still have busted subdivisions and frankly there isn’t enough supply or confidence in the market to spur significant activity in the new home market.

Housing Starts Stall

The Census Bureau reported housing starts fell to an estimated 10.6% in April over March 2011 to a seasonally adjusted annual rate of 523,000.   Year-over-year housing starts are an estimated 24% below April 2010 forecasting the worst year yet for home builders.  Single family starts were down 5.1% in April over March.  Building permits were also down.  Permits stood at a seasonally adjusted annual rate of 551,000, down 4.1% from March 2011 and 12.8% below April 2010’s estimate of 623,000.

With housing starts and building permits creating new cyclical lows every month, supplies of existing homes both for purchase and rental will become constrained.  We’ll see this first in the rental market as people foreclosing or short-selling will be forced to become tenants.  This plus the migration away from an ownership society will be a boon for investors.  With little new product hitting the market, the investment side should continue to be profitable from the yield perspective.

Interest Rates Soften Further

Interest rates continued to drift down for the week ending May 26^th, 2011.  According to Freddie Mac, the 30-year fixed rate fell to 3.60% from 3.61% the prior week.  The 15-year fixed rate dropped to 3.78% from 3.80%.  A year ago rates were at 4.84% and 4.21% respectively.

The leading index of economic indicators declined 0.3% in April.  Housing data was weaker in April as well.  Because of this, rates have continued the short term downward trend.  When economic indicators improve, we’ll see rates rise commensurately.

Delinquency Declines

Levels of serious delinquency are dropping rapidly forecasting a light at the end of the tunnel for the housing crisis.   Seriously delinquency dropped from 5.47% year-over-year to 4.27% for the month ending March.  Month-over-month delinquency is down from 4.44% in February, 2011.

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The Week in Housing: Pending Home Sales, Interest Rates, Delinquency, and More

The delinquency picture is changing, interest rates continue their short term trend, an update on housing starts and existing home sales; enjoy!

Interest Rates Soften Further

Following 5 weeks of declines, mortgage rates fell further for the week ending May 19^th, 2011. According to Freddie Mac, the 30-year fixed rate eased from 4.63% to 4.61%, while the 15-year fixed dropped from 3.82% to 3.80%.  A year ago, the 30-year fixed rate stood at 4.80%.

Weak industrial production, slow retail sales, and a poor housing data contributed to the soft interest rates for the week. Interest rates continue to be weaker, reminiscent of last year. But how far will rates fall before the subsequent rise?  Potential contributors to lower rates include; sovereign debt crises, Middle East instability, and weak economic data here.  What will stop the recent rate decline? The economic picture will slowly improve and we’ll be facing our own debt crisis which will cause a steep rise in rates over the long term.

Here’s a look at the last 12 months:

Existing Home Sales and Supply

The National Association of Realtors (NAR) reported sales of existing homes slowed in April to a seasonally adjusted annual rate of 5.05 million, a decline of 0.8% over March.  April, 2011 is 12.9% lower than 2010 when the tax credit was in full swing.  Based on the existing pace of sales, month’s supply grew to 9.2 months up from 8.3 months at the end of March.

In addition to softer numbers of existing home sales, investor sales fell from 22% of the market to 20% of the market. Cash sales dipped from 35% to 31% of transactions. NAR blamed tight underwriting standards and appraisal issues.  In fact 11% of Realtors surveyed said they had a contract cancel due to a low appraisal. I have to agree with NAR on the appraisal issues.  My firm had a property that received 2 appraisals; one appraisal arrived at a value of $190,000, the other $100,000.  To say Zillow is substantially less accurate than appraisals takes a lot of chutzpah these days.

Delinquency Dives

Could there finally be a light at the end of the tunnel?  The Mortgage Bankers Association reported that levels of loan delinquency are in decline.   The delinquency rate of 1-4 unit loans declined from 10.06% a year ago to a seasonally adjusted annual rate of 8.32% for the quarter ending March 31st, 2011.  New loan originations from late 2008 until now have much stricter underwriting standards allowing levels of delinquency to decline.

-         Full report on loan delinquency

Despite these big drops in loan delinquency, there are still many reasons for concern.  The level of delinquency is still historically high and some states still have much many reasons to exercise caution such as Florida with 24% of all delinquent loans. Nevada still has an annual rate of 9% of all loans going into foreclosure, Arizona stands at 7%.  These are some of the states where investors are putting emphasis because of incredibly low prices and projected high population growth rates.

Housing Starts Stall

The Census Bureau reported housing starts fell to an estimated 10.6% in April over March 2011, to a seasonally adjusted annual rate of 523,000.   Year-over-year housing starts are an estimated 24% below April 2010, forecasting the worst year yet for home builders.  Single family starts were down 5.1% in April over March.  Building permits were also down to a seasonally adjusted annual rate of 551,000; down 4.1% from March 2011 and 12.8% below April 2010’s estimate of 623,000.

With housing starts and building permits creating new cyclical lows every month, supplies of existing homes both for purchase and rental will become constrained.  We’ll see this constraing first in the rental market as people foreclosing or short-selling will be forced to become tenants.  This plus the migration away from an ownership society will be a boon for investors.  With little new product hitting the market, the investment side should continue to be profitable from the yield perspective.

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The Week in Housing: Delinquency, Housing Starts, Existing Home Sales, and more.

The ever-changing housing market continues this week with an update on interest rates, negative equity from Zillow, and the March Home Price Index from CoreLogic.

Interest Rates Continue Short Term Slide

Mortgage rates declined for the week ending May 12, 2011.  Freddie Mac reported the 30-year fixed mortgage rate dropped to 4.63% from 4.71% a week ago.  The 15-year fixed rate declined to 3.82% from 3.89% from the prior week.

Instability in Middle East and uncertainty in the Eurozone caused a flight to the safety of US Treasuries.  The demand of US Treasuries caused rates to drop.  Rates have been fluctuating wildly over the first few months of the year leaving many to wonder which direction they are headed long term.  I still think we are headed for higher rates over the long term.  How long?  We’re likely to be higher by year end.  Prices are starting to rise and the Fed has expressed they’re prepared to step in and raise rates.

CoreLogic: Double-Dip Here

CoreLogic released its March Home Price Index, showing that priced declined 1.5% for the month.  Year-over-year, home prices declined 7.5% nationally when distressed sales are included.  Appreciation is occurring in some markets; West Virginia (+7.7%), North Dakota (+4.1%), New York (+3.5%), Alaska (+2.4%), and Maine (+0.4%).  Big declines were felt in Idaho (-13.3%), Arizona (-12.3%), Michigan (-11.9%), Florida (-10.6%), and Illinois (-10.6%).  According to Corelogic, prices are 4.6% below their 2009 lows.

Home price declines are slightly inflated as the year-over-year results now compare data from sales during the home buyer tax credit last year.  Declines are still being felt throughout many markets in the US, but some markets are seeing price growth.  I still feel confident we’ll see prices stabilize by the end of the year with many markets showing upside as inventories dwindle.

28.4% of Homes in Negative Equity

Zillow released its Real Estate Market Report for the first quarter of 2011. In this report, Zillow highlights several items including; 28.4% of all homes are now in negative equity situations.  Also Zillow reported that home prices fell faster in the first quarter of 2011 (-3%) than in any quarter since 2008.   In the report, Zillow says home prices are now 29.5% off their peak in June 2006.

Zillow is forecasting that home values will not reach their bottom in 2011 and believes the decline is accelerating. With regards to negative equity Zillow reports the following cities have more than 50% of homes in negative equity situations; Atlanta (55.7%), Phoenix (68.4%), Riverside (50.7%), Tampa (59.8%), and Sacramento (51.2%).

Summary

Rates continue to be favorable despite a shift in the fundamentals of the economy.  Signs are pointing to rising inflation, a looming debt crisis, leading to a rise in interest rates.  Investors in this real estate market should pay attention to the continued low prices, declining vacancy, and negative equity situations.  This combination means the opportunity isn’t going anywhere over the short run.  For those readers who are active, you’ve already noticed the market is changing.

Someone at my firm offered on a property in South Florida the other day.  There were 19 cash offers on the property within a couple days of it hitting the market.  In the same area 6 months ago we were one of few interested parties; something to think about.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Negative Equity, CoreLogic’s Home Price Index, Interest Rates, and more: The Week in Housing

This week the housing market offered better rates, allowing refinancing to increase again. The Multi Housing Council released its quarterly survey, and Clear Capital declared an official double-dip in home prices.

Interest Rates Favorable Again

Mortgage rates were more attractive again for the week ending May 5^th, 2011.  Freddie Mac reported a decrease in the 30-year fixed mortgage rate from 4.78% to 4.71%.  The 15-year fixed rate declined from 3.97% to 3.89%.

The rates this week were lower because of economic growth disappointing analysts.  However that could change. The ADP jobs report came out on Friday with the economy adding 244,000 new jobs.  Despite the increase, unemployment rose to 9.0% as the number of jobs being added hasn’t kept up with population increases.  I still believe we’re headed for a higher interest rate environment unless the economy slides further.

Refinance Activity Back Up

Refinance activity increased for the week ending April 29^th, 2011.  Lower mortgage rates caused an increase in refinances and a slight bump in purchase activity, according to the Mortgage Bankers Association.  The Market Composite Index was up 4.0% week-over-week, lead by refinances (up 6.0%) and followed by purchase money applications (up 0.3%).  When considering the 4-week moving average, refinances are flat, while purchase applications are down 2.4%.

Refinance activity is typically the sign of an unhealthy housing market and favorable interest rate environment.  Until substantial improvements happen in purchase money applications, we’re likely to only see slight improvements in home sales.  Of course any improvement at this point is good.

Multi-Family Index Proves Strong Rental Market

The National Multi Housing Council released its quarterly Survey of Apartment Housing Conditions.  The survey’s Market Tightness category registered a record 90 on a scale of 1-100.  That number represents very low vacancy and rising rents.  Also the Equity Financing category set a record at 76 showing that the market is flush with capital and financing options.

This is one of the strongest Apartment Housing Condition surveys in recent history.  The survey showed a very tight market with rising rents, better access to capital, surging debt financing and improving sales.  If you own single-family units, you’re likely experiencing lower vacancies and rising rents as well.  This is especially noticeable in high-quality areas where there is generally tighter supply.

Clear Capital Confirms Housing Double-Dip.

Home prices were affected by winter in the first quarter of 2011, according to Clear Capital.  Clear Capitals Home Data Index (HDI) fell in the month ending April, 2011.  The HDI showed home prices 0.7% below March 2009’s low signaling a double-dip housing market. Year-over-year home prices declined in the US 5.0%.  Further REO saturation stood at 34.5%.  Essentially over 1/3 of all home sales are foreclosure sales.  According to the HDI, the BEST performing cities were Charlotte, NC (-1.4%), Washington, D.C. (-1.6%), Tucson, AZ (-1.7%), Dallas (-1.7%).  The worst performing were Detroit, MI (-13.4%), Hartford, CT (-12.8%), Milwaukee, WI (-12.6%).

There’s no question home prices continue to decline.  This comes on the heels of contrasting data with regards to multi-family rent increases and tightening supplies.  When the prices do finally stabilize we should see price growth turn around quickly.  On a weekly basis it’s certainly hard to see the improvements in the market but there are several consistencies happening; a tighter rental market, lower early-stage delinquency, and record low home building. Because of this the fundamentals continue to improve in the housing space.

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Tightening Rental Market, Lower Rates, Home Prices and More: The Week in Housing

The housing market appears to be slowing fairly consistently in both new supply and new sales, according to my latest gathering of data from the MLS in Tallahassee. I know that most readers here are NOT in Tallahassee, but I can tell you that for my 20+ years in the real estate brokerage business, the Tallahassee housing market has been a good microcosm of the national market.

One report that I update and a weekly basis measures the 30 day trend of homes coming onto the market as well as the 30 day trend of homes leaving the market. Homes that leave the market include sales and canceled/expired/withdrawn listings. By studying the difference between the two, you can tell if the current trend is rising or falling supply levels.

A few observations that I gain from the graph: Both supply and demand are falling at the same rate. I suspect this is a sign of home sellers who are not serious are less inclined to “test the market” right now and must be holding back until the market strengthens. The red and green trend lines move from left to right, falling at the same rate (over 30% since 2008).

Another observation is the yellow “bumps” in supply change that occur each year in the spring. Notice how only once per year the supply seems to grow, and usually from late February through May. This year, the supply didn’t start to rise until March, and ended during the month of April.

By keeping a close eye on the changes in supply and demand in your local market, you can be the first to know when a cycle change is imminent. This is very handy information for real estate investors who are always looking for a “leg up” on the competition.

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Local Supply And Demand Trends In Real Estate

A busy week in the housing market included reports on pending home sales, new home sales, home prices and an update on home ownership and vacancy rates.  Enjoy!

Pending Home Sales Rise

The National Association of Realtors reported a rise in pending home sales for the month of March.  Pending home sales rose 5.1% to a 94.1 in March over 89.5 in February.  This is 11.4% below 106.2 in March when the second home buyer tax credit was in full force.  The Pending Home Sales Index is now 24% up over the cyclical bottom reached in June (post tax credit).

Pending home sales are improving month-over-month.  The year-over-year data is cloudy because of the home buyer credit.  Unfortunately these numbers will be skewed until the fall.  At this point any increase, especially month-over-month is an improvement for the housing market.

New Home Sales Rise

The Census Bureau reported that new home sales rose 11.1% in March over February to a seasonally adjusted annual rate of 300,000 units.  While this number is an improvement over February it is nearly 22% below March of last year.  Based on the current rate of sales, there are 7.3 months of supply.

New home sales improved in March over February but are still significantly below last March.  Last March was impacted by the home buyer tax credit as new home sales are booked at time of contract versus existing sales booked at time of close.  The year-over-year comparisons will be inaccurate until the tax credit is well behind us.

Double-Dip Nears as Case-Shiller Index Slides

Standard & Poor’s reported its Case-Shiller Index for the month ending February 2011.  The 10-City Composite Index dropped 2.6% year-over-year while the 20-City Composite fell 3.3% over February 2010.  The 20-City Composite is now nearly even with its April 2009 low, while the 10-City treads close at just 1.5% over its cyclical low.   Atlanta, Cleveland, Las Vegas, and Detroit now have home prices below 2000 levels.  Phoenix is on pace to join them.  Washington, D.C. is the outlier with appreciation of 2.7% and its value is 80% above 2000 levels.

Seeing Washington D.C. appreciate because the government is expanding is disappointing.  Many markets are still in decline and the US is near an official double-dip using Case-Shiller’s data.  It is likely we’ll see this become official by the time Case-Shiller reports March data.  This means as of today we’re beyond a double-dip in home prices.

Home Ownership Declines, Vacancy Rises

The Census Bureau reported that the home ownership rate declined to 66.4% at the end of the Q1 2011 from 66.5% in Q4 2010.  This is a big drop from 67.1% from Q1, 2010.  At the same time the rental vacancy rate rose     to 9.7% in Q1 from 9.4% in Q4 2010.  Despite this small rise in the quarter-over-quarter vacancy, the vacancy rate is down nearly 1% from 10.6% in Q1, 2010.

The vacancy rate rose by 0.3% in the first quarter.  This was unexpected as everyone believes that declining home ownership automatically means declining vacancy.  Unfortunately the vacancy rate rose due to excess housing inventory.  I suspect this is partially due to the influx of investment into real estate.  This has created a significant number of new investment properties in the marketplace.  I think this increase in the vacancy rate is temporary as home-building is still at a record low.  It’s just a matter of time before vacancy rates drop significantly.  However as a landlord, any increase in vacancy is concerning, even if it is short term.  Increased vacancy means lower rents.

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Pending Home Sales, Home Prices, Vacancy Rates, and more: The Week in Housing

This was a busy week for housing.  Data is in from the NAR on existing home sales, builder confidence, interest rates, housing starts, housing completions, and building permits.

Existing Home Sales Rise

March gave us a marked improvement in existing home sales.  The National Association of Realtors reported that sales of existing homes rose 3.7% in March to a seasonally adjusted annual rate of 5.10 million.  While up from February, home sales are down 6.3% from last March.  At this time last year the second home buyer tax credit had just kicked off.

After a disappointing February, existing home sales ticked up in March. Much of the cold weather is behind us and we should see more improvement in the month-over-month results.  I doubt we’ll see year-over-year improvement until the last tax credit fully 1 year behind us. What’s important to note is the impact that cash buyers and investors are having on the market.  Cash buyers made up 35% of sales this March versus 27% a year ago and investors are 22% of existing home sales vs. 19% a year ago.

Housing Starts Increase, Building Permits Up, and Housing Completions Down

The Census Bureau reported this week that housing starts increased by 7.2% in March to a seasonally adjusted annual rate of 549,000.  Housing starts are still 13.4% below March of 2010.  Building permits were also up over February.  Permits were 11.2% higher than February to a rate of 594,000 annually.  Lastly, the number of homes being completed dropped in March by 14.2% to a rate of 509,000.  This is 20.8% below last March.

Essentially builders continue to struggle.  March was an improvement on leading indicators.  Any improvement in permits and starts is a step in the right direction for builders.  For the rest of the housing market, continued low completions means less supply.

Interest Rates Decrease

After seeing 4 weeks of rate increases, mortgage rates dropped, wiping out a month of increases.  Freddie Mac reported that the 30-year fixed mortgage rate decreased to 4.80% from 4.91% for the week ending April 21^st, 2011.  The 15-year fixed decreased to 4.02% from 4.13%.

Rates have backed down again providing some relief for the market.  This follows reports that core prices increased only 0.1%.  Unfortunately the Consumer Price Index doesn’t include food or energy prices.  I still believe this is a false low in rates and we’re trending up from here.  Just a quick side note, the owner’s equivalent index for rents rose 0.1%.

Builder Confidence Goes Even Lower:

Just when you thought builders couldn’t be less confident in market conditions, confidence declines.  The National Association of Home builders reported builder confidence declined from 17 to 16; anything above 50 is considered healthy.

Home builders are having a tough time getting financing to build.  This year is projected to be the lowest on record for housing completions.  Financing is improving for some larger developers.  In fact I was at an event a week ago where some of the largest developers in New York were in attendance.  Representatives from SL Green, Fortress, Avalon Communities, and Silverstein discussed the improving financing conditions.  I think we’ll see this work its way to smaller builders in the single-family arena in the next 24 months.  This year is going to remain tough.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Existing Home Sales, Housing Starts, Builder Confidence and more: The Week in Housing

This week we cover increasing interest rates, declining foreclosures, and get an update on mortgage applications.  We’ll also look ahead to next week’s busy week of housing data.

Rate Creep is Back

Thankfully for the housing market, rates have been relatively stable lately, rising only nominally.  However this week’s drift up in rates marks the 4^th consecutive rise in interest rates.  Freddie Mac reported the 30-year fixed increased to 4.91% from 4.87% the prior week.  One month ago it stood at 4.76%.  The 15-year fixed moved up to 4.13% from 4.10% the prior week and is up from 3.97% one month ago.  Much of this week’s increase can be attributed to positive retail sales and consumer spending.

With a slowly improving economy, we can expect rates to rise.  Also inflation worries continue as 5 states now report $4 gasoline.  The Fed has already said we can expect rate hikes this year.  Many other countries are already increasing rates to keep inflation down.

Foreclosures Decline 15%!

This week RealtyTrac reported a big decline in foreclosures for the first quarter of 2011.  Foreclosure filings were down quarter-over-quarter 15% and down 35% year-over-year.  For the month March was up 7% over February.  There were 681,153 foreclosure filings in the first quarter of the year.  California led the way with 168,543 foreclosure filings, counting for 25% of the nation’s filings.  Florida, Arizona, Georgia, and Michigan rounded out the top 5.

Foreclosures are in decline foreshadowing the end of the housing crisis.  This end is still years out but these are good signs that inventory fundamentals are improving. Financing still is the biggest hindrance in a broader market recovery and we’ll likely see supply and demand fall be the reason the housing market recovers.

Mortgage Purchase Applications Drop

The Mortgage Bankers Association reported a broad drop in mortgage application activity for the week ending April 8, 2011.  The Market Composite Index dropped by 6.7% from the prior week, led by a decline in refinance activity (down 7.7%) and followed by purchase activity (down 4.7%).  The 4-week moving average for refinances is down 5.3% and up 0.7% for purchases.  Refinances dropped to a 60.3% share of the market.  At peak refinances were well over 80% of all mortgage applications.

Though we haven’t seen much in the way of significant improvement here, one would expect refinances to drop with rate increases.  I’m glad we’re seeing purchases make up more of the market here and ideally would like to see purchases over 50% of the market.  We should see more purchase activity as we get into prime home buying season.

Look Forward:

After a relatively quiet week in the housing market, we’ll look forward to the upcoming week for a sea of data.  We’ll see the FHFA Housing Price Index, builder confidence, housings starts, existing home sales from NAR, an interest rate update, and mortgage applications. This will be a busy week of housing data and we’ll get some idea if March was any better than the dismal start to the year (especially on the construction side).  We should see better existing home sales in the least.

This Article is Copyright © 2004-2011 BiggerPockets, Inc. All Rights Reserved.

Interest Rates Creep Up, a Big Decline in Foreclosures, and more: The Week in Housing