Catastrophe Worsens for Housing Market — Home Prices and Home Sales Fall Again

As Congress meets to bailout the financial industry and George Bush vies with Freddie Krueger for the nation’s archetypal face of visceral terror, the latest report from the Census Bureau shows that the housing catastrophe continues to get worse. 

Here’s the summary of the bad news:

• New homes sales in August dropped to the lowest level since January 1991.
• Home prices hit a four-year low. 
• Inventory continues to rise, creating more downward pressure for home prices.

And here are some of the ugly new numbers:

• New home sales had a seasonally adjusted annual rate of 460,000, down 11.5 percent from a revised 520,000 in July and down 24.5 percent from a year ago.
• Only 39,000 new homes were sold in July, the lowest level since December 1991.
• Prices for new homes were at their lowest level since September 2004.
• The median price of a new home sold in August was $221,900, down 5.5 percent from $234,900 in July and down 6.2 percent from $236,500 a year ago.
• 166,000 new homes came on the market in August, bringing total inventory to a seasonally adjusted 408,000, equal to 10.9-month supply, up from a 10.3 month supply in July.
• New home sales fell 31.9 percent in the Northeast, 2.1 percent in the South and 36.1 percent in the West. Only the Midwest showed an increase in new home sales, up 7.2 percent.
• Three out of four builders reported having to pay buyers’ closing costs or offer other incentives such as expensive features for free in order to maintain sales.

The housing market is so bad that the main cheerleader for an I-can-see-the-light-at-the-end-of-the-tunnel approach to the real estate crisis – the National Association of Realtors (NAR) – has finally admitted, albeit with NAR’s typical understatement of the obvious, that “the pendulum in the mortgage market has swung too far.”

But if you’re looking for a bright side to the nation’s residential real estate fire sale, NAR’s number one Pollyanna-in-Chief, economist Lawrence Yun, still has a bromide to offer.

“August sales reflect higher interest rates before the government takeover of Freddie Mac and Fannie Mae, and the sudden drop in mortgage interest rates over the past couple weeks is improving housing affordability,” Yun said. “With higher loan limits and a beefing up of the FHA program, all the mechanisms have been falling into place to increase mortgage availability.”

Yeah.  Right.

Home Prices Slip Again in Biggest Fall on Record

Home prices in 20 U.S. metropolitan areas fell in April 2008 by the most on record.

The Case-Shiller Index of 20 large cities for April 2008 shows housing price declines are accelerating, and are now falling at a rate of 15.3% from last year’s levels.

The report also showed that home prices fell 1.4 percent in April from a month earlier after a 2.2 percent decline in March.

There’s one bit of “good” news in the report: home price declines were less than expected.  According to economists surveyed by Bloomberg News, the index was forecast to fall 16 percent from a year earlier.

Not surprisingly, the housing bust continues to be most severe in previous boom areas in the West and Florida. 

Here are the markets where prices are falling fastest:

Las Vegas: -26.8%
Miami: -26.7%
Phoenix: -25.0%
Los Angeles: -23.1%
San Diego: -22.4%
San Francisco: -22.1%

Average of 20 large cities: -15.3%

The decline in home prices appears to be spreading.  Chicago showed a 9.3 percent decline and prices in New York City declined by 8.4 percent.  Charlotte, North Carolina, showed a decline for the first time.

According to Bloomberg.com, “One bright spot in the report was that more cities showed a gain in prices in April compared with the previous month. Houses in eight areas rose in value, compared with just two in March. Month-over-month gains were led by Cleveland and Dallas.”

 

Pending Home Sales Rise — But Don’t Expect the Housing Market to Recover Soon

There was some unexpected positive news on the housing front today: pending home sales rose in April 2008 to the highest level since October 2007, according to the National Association of Realtors (NAR).

NAR complies a monthly “Pending Home Sales Index” (PHSI), which tracks housing contract activity based on signed real estate contracts for existing single-family homes, condos and co-ops. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The PHSI gives figures for the nation and four regions, and includes seasonally adjusted as well as not seasonally adjusted figures.

A reading of 100 on the PSHI is equal to the average level of sales activity in 2001.

April’s PHSI figures show that the seasonally adjusted index of pending sales for existing homes across the nation rose to 88.2 percent from a March reading of 83.0 percent.

March’s figure of 83.0 percent was the lowest since the index was started in 2001.

Moreover, the April 2008 figure of 88.2 percent is still 13 percent below April 2007’s reading of 101.5 percent.

Some regions fared much better than others.

The region that did best was the West — with a seasonally adjusted figure of 98.8, its highest level since June 2007.  The West also showed an 8.3 percent increase from last month and a 4.0 percent increase from 95.0 percent a year ago. 

The Midwest — at a seasonally adjusted rate of 83.7 percent — posted a 13.0 percent increase from last month, but a 13.1 percent drop from last year’s figure of 96.4 percent.

The South — at a seasonally adjusted rate of 88.8 percent — showed a moderate 4.6 percent increase over last month, but that was still a stunning 22.5 percent decline from last year’s figure of 114.6 percent.

The worst region in regard to pending home sales was the Northeast — with a seasonally adjusted rate of 79.3 percent — which indicated both a monthly decline ( -1.9 percent) and a sharp decline (-12.2 percent) from 101.5 percent a year ago.

As usual, NAR strained to see these very modest national gains in the most positive light, claiming that they show that “the underlying fundamentals point to a pent-up demand.”

NAR chief economist Lawrence Yun again predicted that an upturn in the housing market is just around the corner.

“Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” Yun said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely.”

Other analysts are not nearly as optimistic about the meaning of the PHSI figures. 

They point out that banks are dumping properties at fire-sale prices, and that inventories will continue to grow as foreclosures continue to rise.  NAR’s PHSI does not differentiate between full-market sales, short-sales, and foreclosures.

Even NAR’s economist Lawrence Yun acknowledges that much of the increase in pending home sales comes from “bargain hunters” who have “entered the market en mass.”

The New York Times reports that Mark Zandi, the chief economist for Moody’s economy.com, believes that April 2008 marks the bottom for home sales, but he also believes that home prices won’t bottom out for another year. ”It’s the beginning of the end of the housing downturn, but it will be a long painful ending,” he said.

We think that Zandi is being overly optimistic — when the housing downturn ends depends on many factors, including straightening out the mortgage and credit industries, that are still a very long way off.

 

Housing Meltdown Continues as Home Prices Fall 14.1 Percent

Despite a slight uptick in the sales of new homes, there is new evidence that the U.S. housing slump will not end anytime soon. 

Yesterday the Standard & Poor’s/Case-Shiller Index showed that national home prices fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.

And even though the sales of new homes were up slightly in April, they remained near their lowest levels since 1991.

New home sales were up 3.3 percent from March, but were down a stunning 42 percent from a year ago.

April’s new home sales were the second-lowest since October 1991, behind only March of this year.

The National Association of Realtors, in its typically disingenuous fashion, spins these bleak figures as an “easing” of home sales.

According to the New York Times, “Even markets that once seemed immune to the slump, like Seattle, are weakening. Prices nationwide might fall as much as 10 percent more before a recovery takes hold, economists said. As the home-buying season enters what is traditionally its busiest period, there are simply too many homes in many parts of the country, and too few people with the means to buy them. The situation is likely to get worse because a rising tide of foreclosures is flooding the market with even more homes, while a slack economy and tight mortgage market are reducing the pool of potential buyers.”

Those who can hold on to their properties are not selling at current prices and those who can buy are waiting for prices to fall still lower.

And they will get lower.

With more than 4.5 million homes on the market, and with a rising tide of foreclosures that continues to add dramatically to that figure, prices are certain to continue to fall even further.

There is plenty of money waiting for prices to stabilize, but that won’t happen for quite a while.

First, something must be done to stop the flood of foreclosures that are adding to the nation’s already overloaded housing supply.

Second, the banks and lenders must respond to the Federal Reserve’s lowering of interest rates by passing these lower rates on to more borrowers.

Our guess is that little or nothing will happen on these fronts until after the presidential election.

Meanwhile, the meltdown continues.

 

 

Home Sales Set Record Low (Again) — Prices Decline and Inventory Sets Another Record

Existing home sales fell again to another record low in April.

The National Association of Realtors (NAR) reports that “Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 1.0 percent to a seasonally adjusted annual rate of 4.89 million units in April from an upwardly revised pace of 4.94 million in March, and are 17.5 percent below the 5.93 million-unit level in April 2007.”

The figures represent another record low since NAR has began keeping records in 1999.

The biggest decline was in sales of apartments and condominiums, which plunged 5.2 percent after two months of rising sales.

Demand for single-family homes dropped 0.5 percent in April.

NAR also reported that the national median existing-home price for all housing types was $202,300 in April, an 8.0 percent fall from April 2007 when the median price was $219,900.

Perhaps the worst news is that the inventory of homes for sale has continued to rise and is now at its highest level in more than 20 years. 

Inventory rose 10.5 percent to 4.55 million existing homes available for sale, an 11.2-month supply.  With so many homes on the market, it is likely that prices will continue to decline.  And with foreclosures continuing to flood the real estate market, it is expected that price declines will continue for at least several more months.

In addition, continued home price declines are keeping homebuyers, as well as investors, out of the market, as they expect even cheaper home prices in the near future. 

In other words, despite (and, to a large extent, because of) sharply declining prices, supply continues to rise while demand continues to fall.

Not a pretty picture for real estate.

As is usually the case, some regions fared better than others:

April sales dropped 6 percent in the Midwest and 4.4 percent in the Northeast, but rose 6.4 percent in the West (see our post on rising home sales in Orange County, California). 

Sales stayed steady in the South. 

Median prices fell across all regions.

In the West, the median price was $285,700, 16.7 percent lower than April 2007.  In the South, the median price was $170,800, down 5.1 percent from a year ago.  The median price in the Northeast was $262,000, 7.7 percent below April 2007.  The median price in the Midwest was $159,100, down 2.9 percent from April 2007.

NAR points the finger at the mortgage industry, blaming “restrictive lending practices” for the decline in sales, the lower home prices and the increasing inventory.

Always the optimist, NAR chief economist Lawrance Yun said that recent changes in lending would help homebuyers. “I would encourage buyers who were disappointed by poor mortgage options to take another look at the market because the lending changes are significant,” he said. “Also, a recent notable drop in interest rates on conforming jumbo loans will help consumers in high-cost markets like California and New York.”

We’re not holding our breath.

 

Chronology of Home Price Declines in Orange County — Median Home Price Now Lowest Since March ’04

We found this chronology of the decline in median home prices in Orange County, California, showing a $179,000 decline in single family home prices from its high in June 2007:

Single Family Median Home Price:

2006 ~ Monthly

$690,000 = Feb
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec

2007 ~ Monthly

$675,000 = Jan
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr
$695,000 = May
$734,000 = Jun — Peak of O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov
$600,000 = Dec

2008 ~ Weekly ~ Monthly

$600,000 = 01/07
$595,000 = 01/15
$595,000 = 01/23
$583,250 = Jan
$585,000 = 02/07
$575,000 = 02/13
$575,000 = 02/22
$575.000 = Feb
$580,000 = 03/07
$575,000 = 03/14
$567,000 = 03/20
$570,000 = 03/26
$570,000 = Mar
$553,750 = 04/08
$565,000 = 04/14
$563,000 = 04/22
$550,000 = 04/28
$555,000 = Apr

The most recent DataQuick stats from April 2008 show a $500,000 median selling price. 

The last time median home prices were this low in Orange County was March 2004.

Perhaps even more disturbing: nearly four out of every 10 homes sold in Southern California last month was a foreclosure.

 

Are Orange County Home Sales Recovering?

It appears that residential real estate in Orange County, California, is making a comeback.

The Orange County Register reports that as of last Thursday, 2,540 existing homes and condos had been placed into escrow in the past 30 days, a gain of 677 homes over 2007 and only 161 homes short of late April 2006.

This means that it is possible that Orange County’s record of 31 straight months of declines in home sales will come to an end.

Also, Orange County currently has a 6.8 months inventory of homes for sale — still high, but a big improvement over the 8.33 months inventory of a year ago.

Surf’s up! 

UPDATE:

See our more recent post on the decline in Orange County home prices.