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Is Housing’s False Bottom Beginning to Give Way?


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2009 Sep 29, 9:24am   4,858 views  13 comments

by Greg Fielding   ➕follow (0)   💰tip   ignore  

Is Housing’s False Bottom Beginning to Give Way? 

Despite all the efforts of our Government to prop up the housing market, both sales and prices have resumed their downward trends.

From The National Association of Realtors Existing-Home Sales Ease Following Four Monthly Gains

Existing-home sales in August gave back some of their strong gain in July but remain above year-ago levels, according to the National Association of Realtors®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – declined 2.7 percent to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July, but remain 3.4 percent above the 4.93 million-unit level in August 2008. In the previous four months, sales had risen a total of 15.2 percent.

Lawrence Yun, NAR chief economist, said the tax credit is working. “Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions,” he said. “Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted.”

NAR is pushing hard for the both the extension of the first-time buyer tax credit and the increase in the dollar amount.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.19 percent in August from 5.22 percent in July; the rate was 6.48 percent in August 2008.

We can’t blame interest rates for the pull-back.

The national median existing-home prices for all housing types was $177,700 in August, down 12.5 percent from August 2008. Distressed properties continue to downwardly distort the median price because they generally sell for 15 to 20 percent less than traditional homes.

Single-family home sales fell 2.8 percent to a seasonally adjusted annual rate of 4.48 million in August from a level of 4.61 million in July, but are 2.5 percent higher than the 4.37 million-unit pace in August 2008. The median existing single-family home price was $177,500 in August, down 12.1 percent from a year ago.

Existing condominium and co-op sales slipped 1.6 percent to a seasonally adjusted annual rate of 620,000 units in August from a spike of 630,000 in July, but are 10.1 percent higher than the 563,000-unit level a year ago. The median existing condo price was $179,300 in August, which is 15.7 percent below August 2008.

Regionally, existing-home sales in the Northeast declined 2.2 percent to an annual pace of 910,000 in August, but are 5.8 percent above August 2008. The median price in the Northeast was $241,100, which is 10.5 percent below a year ago.

Existing-home sales in the Midwest fell 6.6 percent in August to a level of 1.14 million but are unchanged from a year ago. The median price in the Midwest was $149,900, down 10.4 percent from August 2008.

In the South, existing-home sales were down 3.1 percent to an annual pace of 1.89 million in August but are 1.6 percent above August 2008. The median price in the South was $157,400, which is 11.0 percent below a year ago.

Existing-home sales in the West declined 2.7 percent to an annual rate of 1.16 million in August but are 7.4 percent higher than a year ago. The median price in the West was $220,500, down 12.2 percent from August 2008.

Here are 2 Graphs from BusinessWeek that clearly illustrate this summer’s improvement and, potentially, the start of new downward trends.

f2

It’s also important to recognize that existing home sales typically INCREASE from July to August. Economists were expecting a small gain.

Last week, we reported Bay Area Home Sales Experience Abnormal Sales Decline

A thinner inventory of distressed properties for sale, hence fewer “bargains,” helps explain the relatively sharp drop in sales between July and August. The number of foreclosed properties that resold in August fell 15.2 percent from July.

…

The 14.3 percent drop in sales between July and August was atypical, given the average change between those two months is a gain of 3.4 percent.

Here is a graph from Calculated Risk that shows month-by-month existing home sales for the last few years.

EHSSalesNSAAug

NAR is lobbying hard for an extension of the tax credits to continue to prop up the market. However, sales and prices are resuming their fall even with tax-credits and low interest rates.

Expect September’s sales numbers to be even worse. And, expect the mainstream media to be openly discussing the concept of a “false bottom” within another month or two.

#housing

Comments 1 - 13 of 13        Search these comments

1   Bap33   2009 Sep 29, 10:58am  

one other item that sure would make for a cool graph ... the number of REO's that sold in the last 2 years that are already getting NOD's or REO's again.

2   chrisborden   2009 Sep 29, 11:40am  

You gotta watch those false bottoms. They don't cushion the blow from a fall. (Sorry, but we need some humor here.)

3   homeowner_for ever_san jose   2009 Sep 29, 1:26pm  

housing is still way overpriced. another 50% correction still needs to happen due to high unemployment, outsourcing, interest rate resets and ...something else ( i just forgot ....it was there in my mind a moment ago )
The prices will go way below case shiller index because its different this time.....actually mortgage have always been less than mortgage interest for bay area for last 30 years..so i am going to wait till mortgages interest become less than rents !

now lets get back to reality

4   Austinhousingbubble   2009 Sep 29, 1:44pm  

Do you really believe this? Was the house you recently purchased 50% overpriced?

5   homeowner_for ever_san jose   2009 Sep 29, 1:47pm  

oops i forgot to add the * sarcasm * tags.
I am a staunch believer in case shiller index and reversal to mean. just like overshoot from shiller index didn't make sense , undershoot doesn't make sense.

6   Austinhousingbubble   2009 Sep 29, 2:10pm  

Actually, I think you were correct in as much as it being "different this time." Unemployment/under employment, furloughs, pay cuts and a helluva lot less HELOC weatlh floating around, for starters - followed up by tighter credit and a vastly debased currency, accompanied by invariably higher taxes and utilities costs in the coming years. If your observation was purely sarcastic, then perhaps you speak the truth better with your tongue in your cheek.

7   homeowner_for ever_san jose   2009 Sep 29, 2:20pm  

I definetely see a gradual decline in the value of dollar and a reduced standard of living for americans in the coming years but housing won't go down further if Govt is hell bent on using all the money supply tricks to keep it inflated at the expense of dollar.
I never expected 30 year interest rates at 5% and 5 year arms at 3.5% after the whole housing and finacial bubble drama.
It clearly shows that govt is inflating the housing and will not let it fall.

8   homeowner_for ever_san jose   2009 Sep 29, 2:35pm  

apart from earthquakes and floods , bay area is very close to the ocean and in the event of tsunami..we are hosed.
looks like moore's law is nearing its end and we will see the engine of bay area (technology) slow down which will bring the housing down drastically.healthcare costs is rising crazy ..making bussinesses run other places. education in US going down the toilet and other countries are catching up big time with thier economy.dollar is loosing its reserve currency status.uneducated immigrant population is increasing at alarming rate and will reach critical mass soon which would make us a nanny state. moral standards are now gone ..no ethics..teenage pregnancies..divorce rates., obesity...US is toast...game over.

9   Austinhousingbubble   2009 Sep 29, 2:57pm  

...housing won’t go down further if Govt is hell bent on using all the money supply tricks to keep it inflated at the expense of dollar....

I think the bag of tricks is a finite one, but you make a fair point. That's also why you should keep in a holding pattern of Wait & See.

10   homeowner_for ever_san jose   2009 Sep 29, 3:41pm  

I agree that the bag of tricks is finite one but is very powerful.it worked pretty well for stock market lately ( i honestly didn't expect it will work)

11   nosf41   2009 Sep 29, 4:17pm  

wish i was lucky says

...
Also - PG&E is installing their smart meters. I hope you’re all prepared for a lifestyle change - running the dishwasher and doing laundry at night. Not to mention outrageous bills.

Smart meters will not cause outrageous bills. The "cap and trade" (CO2) legislation will. House has quietly passed its version of the bill (H.R. 2454). Now it is up to Senate to act.

House bill introduces new loan products:

"...
SEC. 287. DUTY TO SERVE UNDERSERVED MARKETS FOR ENERGY-EFFICIENT AND LOCATION-EFFICIENT MORTGAGES.

Section 1335 of Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4565), as amended by the Federal Housing Finance Regulatory Reform Act of 2008 (Public Law 110-289; 122 Stat. 2654), is amended--

(1) in subsection (a)(1), by adding at the end the following new subparagraph:

(D) MARKETS FOR ENERGY-EFFICIENT AND LOCATION-EFFICIENT MORTGAGES-

(i) DUTY- Subject to clause (ii), the enterprise shall develop loan products and flexible underwriting guidelines to facilitate a secondary market for energy-efficient and location-efficient mortgages on housing for very low-, low-, and moderate-income families, and for second and junior mortgages made for purposes of energy efficiency or renewable energy improvements, or both.

(ii) AUTHORITY TO SUSPEND- Notwithstanding any other provision of this section, the Director may suspend the applicability of the requirement under clause (i) with respect to an enterprise, for such period as is necessary, if the Director determines that exigent circumstances exist and such suspension is appropriate to ensure the safety and soundness of the portfolio holdings of the enterprise.’;
..."

Somebody said that government is running out of tricks?

12   Tude   2009 Sep 30, 1:23am  

wish I was lucky,
Funny you mention energy usage. My house (built in 1949) is better insulated and better build than almost any home built more recently. Because of where we live we don't even have air conditioning. In winter we run the heat maybe 2 hours a day. We live in a small house and the entire house is heated by a fireplace insert (it gets so hot so quickly we often have to open windows). Our PG&E bill averages $45/month.

It's pretty easy in the Bay Area to have very low energy bills.

13   jturner   2009 Sep 30, 7:20am  

I agree with homeowner_for ever_san jose about the value of the dollar continuing to erode, and a lower standard of living for most Americans. This is due to reckless govt spending and huge fiscal deficits because the political system creates huge conflicts of interest between the short term desires of elected officials and the long term healthy of the country. So for the average person I think one of the few ways to protect him or herself from these dangers is to invest in some gold related assets, because gold should continue to rise due to the Fed's policies to avoid any form of deflation. I recently read some good articles on these topics at http://www.goldalert.com that I think are useful for investors to check out. They discuss in depth the unintended consequences of all the money printing, as well as the potential impact on the dollar, the gold price, and the prospects for the global economy.

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