Tag Archives: Lawrence Yun

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.

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.


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.


Home Sales and Median Prices Show No End to Real Estate Slump

Anyone thinking that the free fall in the residential real estate market was about to bottom out, needs to think again based on the dismal figures released today by the National Association of Realtors (NAR).

Once again, existing home sales fell, and once again, median home prices declined from a year ago.

The specific figures are these:

  • Sales of existing home fell by 2 percent in March to a seasonally adjusted annual rate of 4.93 million units, down 19.3 percent compared with a year ago.
  • Median home prices suffered a decline of 7.7 percent from the median price a year ago. This was the second-biggest year-over-year price decline following a record 8.4 percent drop in February.

On the other hand, there was some glimmer of light in these dark statistics:

  • While sales were down 6.5 percent in the Midwest and 3.5 percent in the South, slight increases in sales (2.2 percent) were recorded in both the Northeast and the West.
  • The median home price also showed a very slight up-tick. The median price in March was $200,700, which, although down 7.7 percent from a year ago, was still up from February’s median price of $195,600.

However, this rise in median home price was concentrated in one section of the country. The Northeast was the country’s only region to experience a rise in median prices, which were up 4.6 percent compared with a year ago.

Prices were down in all other regions of the country, dropping by 14.7 percent in the West, 7.1 percent in the South and 5.3 percent in the Midwest. 

NAR also reported home price gains in certain metro areas of country whose regions generally showed declines — Des Moines, Iowa, Austin, Texas, and Durham, North Carolina.

So what does all this mean?

Contrary to the sugar-coating given to these figures by NAR economist Lawrence Yun, we believe that the residential real estate market is still far from bottoming out — and that as more adjustable rate mortgages reset it could get even worse than it is now.


For an update on the commercial real estate market, click here.

Mixed Signs in the Tea Leaves: Residential Sales Up, Median Prices Down, Lower Home Supply, and Commercial Real Estate Stronger than Feared

Every day we read the tea leaves (in the form of news and the financial reports) looking for indications of where the real estate market is heading.

Our conclusion for today: mixed signals.

We are sceptical about the report today from the National Association of Realtors (NAR) of a 2.9 percent rise in exisiting home sales in Febuary 2008 over last month.

NAR’s chief economist Lawrence Yun sees the data as “encouraging” and a sign that the housing market is “stabilizing.”

Yun said: “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing. Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”

We’d like to believe it, but we note that NAR and its affiliates have a terrible track record in forecasting the real estate market and have often been forced to revise their figures to be less optimistic than originally stated.

For example, the California Association of Realtors now projects that 332,100 homes will sell this year, revised downward by over 2,000 sales from it’s prediction in October and that the median price of a single-family house in the state will drop 9% this year, as opposed to a 6% drop they expected in October.

We note, too, that the 2.9 percent growth in existing home sales claimed by NAR pales in comparison to the 23.8 percent drop since February 2007.

In addition, even accepting NAR’s report as indicating a positive blip on the radar, median home price figures remain gloomy overall, even according to NAR. NAR’s report today acknowledged that “The national median existing-home price for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500.” And in California, the median single-family house price is expected to drop to $505,100 this year, compared to a 2007 median house price of $558,100.

Orange County Register columnist Jon Lansner quoted a report finding that home supply in Orange County was at an 11 month low.  According to the report, at the current pace of home buying it would take 7.5 months for buyers to take all of the current listings off the market.  It was at 6.09 months a year ago.

A more reliable report of good news comes from CBRE Torto Wheaton Research (TWR) regarding commercial real estate, stating that future commercial mortgage defaults and losses could be overestimated threefold.

According to the TWR report, “While prices have been slow to change in the commercial real estate equity market, the commercial real estate debt markets have been driven by increasing spreads, and decreased availability of mortgage capital.” In recent weeks, prices of the CMBX — a set of derivatives that provide insurance against default — and prices in the commercial mortgage-backed securities (CMBS) market are “out of line with what any likely future income stream of the underlying mortgages would suggest.”

The National Real Estate Investor observes that the TWR report shows that “Despite an expected incremental rise in vacancies across all major property types over the next few years, vacancies are still expected to remain lower than 2002/2003 peak levels, and the 2008/2009 period is projected to see rents to continue moving upward into positive territory. Currently, according to the report, CMBS and CMBX markets have priced in losses tied to doomsday estimates, more in line with 1992, at which point commercial banks lost 160 basis points.”

“One of the big differentiators between today’s ailing economy and that of 1992, is that there is currently an equilibrium with supply and demand in commercial real estate, which should weather the storm even as the economy is running out of steam. And, one of the biggest feared financial stressors — the collapse of a major investment bank — might still not bump the economy too far off its tracks.”

“As all eyes are trained on the JP Morgan buyout of Bear Stearns, which includes some $16 billion in CMBS, that is not likely to be the event that finally sets the price of CMBS. Dumping the bonds onto the market would likely make little sense given the Fed’s pledge to take in hand $30 billion of the ailing investment bank’s most illiquid assets, including both residential and mortgage-backed securities.”

We have some confidence in the TWR report and believe that overall the financial indicators for commercial real estate are much stronger than that for residential real estate.

One caveat is that if, as TWR asserts, the danger in the commercial real estate is mostly psychology of panic, another collapse of a major financial institution may make mass hysteria inevitable. Should another major credit institution do a Bear Stearns, the reprecussions could overwhelm the commercial real estate market as well as the residential market.

Regarding the drop in home supply reported by Jon Lansner, we take it with a grain of salt.  The numbers are small, and the report was confined to a small and perhaps non-representative area of the country.  We also don’t believe that over-supply of homes is a major culprit in the residential real estate crisis, and therefore don’t think that a slight decrease in the current supply will have much effect on prices.

We are not convinced by the NAR report that the residential real estate market is close to stabilizing. We think that NAR’s anouncement of stabilization in the residential real estate market is, at very best, premature, and more of the wishful projecting that has destroyed NAR’s credibility.  

The best that can be hoped for right now in the residential real estate market is volatility.

We hope too that NAR’s new chief economist, Lawrence Yun, who has worked at NAR as an analyst and forecaster since 2000, can somehow recover for NAR the credibility it lost when his predecessor and former boss David Lereah predicted an endless residential real estate boom and refused to face the facts even long after the bubble burst.

We will continue to read the tea leaves…


For an update on commercial real estate, click here.