The theme this week is price declines. While not exciting for the macro-picture, it could be great news if you’re in acquisition mode. Also at the end of this week’s report you’ll find a startling statistic from the Federal Reserve. Enjoy!
Clear Capital: Quarterly Declines Continue
Provider of valuation services, Clear Capital, reported its Home Data Index for the 3 months ending February 2011. The report shows a 3-month price decline of 1.4%, nationally. For the year ending December 2010, Clear Capital reported a 3.9% national price decline. The biggest quarterly declines according to Clear Capital were; Detroit (-13.3%), Milwaukee (-13.1%), Raleigh, NC (-10.5%), Dallas (-9.3%), and Fresno, CA (-7.6%). On the positive side, a market I invest in, Memphis, TN was the top price gainer at (+7.6%) for the quarter.
Clear Capital boasts the most up-t0-date index as it reports monthly on home prices using a rolling 3 month model. Also it reports roughly 10 days after the end of the prior month. Included are both distressed sales and percentage of REO sales. For example Detroit’s REO saturation was 46.8& of all sales. All the cities in the bottom 15 had double-digit REO saturation.
CoreLogic Price Declines
For the 6th straight month, home prices declined, according to CoreLogic’s January Home Price Index. Year-over-year CoreLogic reported a 5.7% decline in US home prices. The decline is accelerating according to their data as December ’10 over December ’09 was only a 4.7% decline. The biggest home price declines were; Idaho(-15.7%), Alabama (-12.1%), Arizona (-11%), Oregon (-9.9%), and Utah (9.8%). Phoenix lead the downturn as far as major MSA are concerned (-10.5%).
Excluding distressed sales, home prices declined just 1.6%; but aren’t distressed sales really affecting the market? Places like Phoenix are still feeling the pains though population growth will likely drive markets in the Sunbelt like Phoenix back. Without the easy financing of the mid 2000’s it may take decades to restore prices to bubble levels. I do expect us to see easing in home price declines in 2011 as absorption of distressed inventory improves.
Mortgage Applications Greatly Improve
After a stagnant month, mortgage loan applications increased, according to the Mortgage Bankers Association. The Market Composite Index increased 15.5%, lead by refinances, (+17.2%) and followed by purchases (+12.5%). Refinances increased to 65.5% of total loan applications. Most importantly, the 4-week moving averages of both refinances and purchases were up; +3.6% for refinances and +1.2% for purchases.
It’s good to see mortgage applications thaw after a long January and February. The first two months teed up some disappointing results for housing, though I still suspect weather had much to do with this. This week we saw pent-up demand as temperatures have been improving nationally. Though application volume could drop a bit after a big week, the trend should be slowly up from here.
Interest Rates: Stable
Surprisingly after all the international turmoil in the Middle East, interest rates have held steady. Freddie Mac reported the 30-year fixed up just 0.1% to 4.88% from 4.87% last week. The 15-year remained unchanged at 4.15%.
Flat rates are welcome relief from the spikes in late 2010 and early 2011. Apparently the market is still vast with refinance potential as 65% of all loan applications were for that purpose. While this is off from the near 85% at the refinance peak in November, it is still a significant share. Having a stable rate environment and available financing is key to a recovery in housing. Housing remains extremely affordable and buying is cheaper than renting in most areas now. Want to know which is better in your area? The New York Times has a pretty nice tool you can try.
Another quick stat for you; the Federal Reserve released its Flow of Funds report showing real estate assets are down $6.3 trillion from the peak. OUCH! People are continuing to de-lever in mass and this process will continue for a couple more years. During that time I continue to think investors have an incredible opportunity to acquire these de-levered assets at greatly reduced prices. Anyone reading this can become part of this huge transfer of wealth through acquiring real estate.