Monday, May 25, 2009

Welcome Back!

The past week was lost in a blur of school holidays, volunteering and little news flow. So as we approach a busy week where housing will be at the forefront, lets take a moment to breakdown what we know about the housing market today....

This week we're faced with a number of housing data points - Case Shiller index at 9am tomorrow, Consumer confidence at 10am tomorrow, existing home sales 10am Wednesday and new home sales 10am Thursday. Existing home sales is the biggest number in the set, but expect them to all be treated the same by the markets. The expectations are for existing home sales to tick up slightly again in April. I'd agree that there has been some activity on the very low end of the real estate market and this data set treats all home sales the same (a $5,000 teardown in Detroit is counted the same as a $790,000 split ranch in Connecticut). That makes the data flawed, but you work with the info that's presented.

In fact, in some of the hardest hit areas foreclosures have led to another round of investor speculation and markets are actually frothy in some areas. Consider the following anecdotal evidence from the NYTimes.....

"Real estate got just about everyone into trouble in Phoenix, and the thinking seems to be that real estate is going to get everyone out.

The low end of the real estate market here — and in some equally hard-hit places like inland California and coastal Florida — is becoming as wild as anything during the boom.

One real estate agent was showing a foreclosed house to a prospective client when a passer-by saw the open door, came in and snapped up the property. Another agent says she was having the lock changed on a bank-owned home when a man happened by, found out from the locksmith that it was available, and immediately bought it."

There are two important factors to consider when talking about this new round of housing sales --

1) The sale of a foreclosed home is not like the sale of a home in the good old days. If first time homebuyer A, buys a house from seller B, seller B now needs a house. Seller B, buys from C, C from D, etc, etc.... This cycle leads to lots of increased economic activity - realtor fees, landscaping, contractors, etc. Consider a foreclosure sale: first time homebuyer A buys a house from the bank. The bank shoves the money into a big box and buries it in the back yard. No further economic activity beyond a single transaction.

2) Those sellers that are able to sell today are increasingly likely to sell at a loss.

" In the first three months of this year, 62 percent of local home sellers accepted less than they paid for their homes, in part because aggressively priced foreclosures have dragged down prices around the region."

This Washington Post article also notes...

"In the Virginia and Maryland suburbs, prices for single-family homes are down to where they were five years ago. In Prince William and Loudoun counties, a flood of foreclosures has pushed prices so low that bargain hunters have flocked there in recent months, helping to boost sales.

But while in past slumps a surge in sales has signaled the start of a rebound, this downturn is unlike any in recent times and it's premature to call a recovery, said Barry Merchant, senior housing policy analyst at the Virginia Housing Development Authority.

The encouraging signs have been offset by more troublesome ones, he said. After tapering off for a few months, foreclosures in Northern Virginia are starting to creep up again and may keep climbing now that several lenders have lifted foreclosure moratoriums.

"If sales are not increasing and foreclosures are on the uptick, then the question is: 'Is there another shoe to fall?' " Merchant said. "Maybe what we were hoping was the bottom was just a bump on the way down."

Finally, there was this bit of news today that Job losses have pushed safe loans toward foreclosure.

"“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

I think the market wants to be pleasantly surprised by all of the housing data (Asian markets were up DESPITE, N. Korea's nuclear tests) so I won't be surprised by a modest bounce around the housing data, but I think people are starting to question the validity of the green shoots hypothesis.....

1 comment:

lidiya said...


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