Just when gloomier pundits were starting to enjoy the housing slump, optimists are piping up to declare it could be almost over. Former Federal Reserve Chairman Alan Greenspan said last week that he detected "early signs of stabilization" in the housing market and some Wall Street economists are also saying the worst may be behind us. For now, the consensus among economists is that the housing downturn will remain a drag on the economy, but probably will not sink the U.S. into a recession next year.
The median price of a home for one family dropped to $219,800 last month down by 2.5 percent on the prices recorded a year ago. This was the biggest drop in prices over a single year since the records were tabulated nearly 40 years ago.
I guess this is a good time to be a buyer though?
But the Realtors believe that the worst is effectively behind them. "The worst is behind us as far as a market correction this is likely the trough for sales," said David Lereah, the Realtors' chief economist. "When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market."
I'm not sure how Lereah is concluding the worst is behind us... Though I can safely say that it is now better to buy a national median house then it was one year ago.
Bloomberg writes some interpretations on the derivatives market pricing.
The slumping U.S. housing market is about to get a lot worse, according to traders of mortgage-backed securities and the so-called derivatives on which they are based.
The ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January. There are more than $500 billion of such notes outstanding.
Not sure how reliable or biased they may be, but Freddie Mac says:
Sales of new and existing homes probably will drop 9.4 percent to 6.76 million in 2006 from a record last year, McLean, Virginia-based mortgage buyer Freddie Mac said Oct. 10.
This statistic is troubling:
About 18 percent of all mortgages issued in the first half of the year were to borrowers considered most likely to default, such as those with high credit-card balances, up from 2.4 percent in 1998, based on data from the Mortgage Bankers Association.
Finally,
Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, forecasts the housing slump will cause the economy to slow and force the Fed to lower interest rates to 4.5 percent next year. The central bank's target for overnight loans between banks is 5.25 percent. Pimco is a unit of Munich-based Allianz SE.
The National Association of Home Builders/Wells Fargo said on Oct. 17 that its index of builder confidence this month rose to 31 from 30 in September, the first increase in a year.
A surging number of condo units have been deferred or abandoned as a result of weakness
During the first eight months of 2006, an average of more than 16,000 condo units were deferred or abandoned each month, compared to about 7,000 per month in 2005 (most of which occurred in the latter part of the year). That is a lot!
Notably, Boston had the highest number of units deferred or abandoned this year, followed by Las Vegas and Miami, the two poster-child markets for the recent condo craze. In Boston, condo sales volume was down 21.4% year-over-year through July, and the median selling price was down 4.1% to $276,00, according to the MA Association of Realtors.
Top 8 markets for deferred or abandoned condo units YTD 2006: Boston: 8,341 Las Vegas: 7,903 Miami: 6,595 Los Angeles: 6,518 Atlanta: 4,475 San Francisco: 3,065 Philadelphia: 2,693 Chicago: 2,625
D.R. Horton reported their earnings today. What follows is part of the press release that accompanied those earnings.
D.R. Horton, Inc., the largest homebuilder in the United States, on Tuesday (October 10, 2006), reported net sales orders for the fourth quarter ended September 30, 2006 of 10,430 homes ($2.5 billion), compared to 13,950 homes ($3.8 billion) for the same quarter of fiscal year 2005. Net sales orders for fiscal year 2006 totaled 51,980 homes ($13.9 billion), compared to 53,232 homes ($14.6 billion) for fiscal year 2005. The Company's cancellation rate (homes cancelled divided by gross homes sold) for the fourth quarter of fiscal year 2006 was 40%, compared to 29% in the third quarter of fiscal year 2006.
This is evidence that the housing market is in a slow down, but looking at the relatively tame drops in net sales orders, there is hope that the bubble is deflating rather than popping in the housing market.
What is troubling though is the rather large jump in is cancellations. This is certainly troubling, but it remains to be seen whether this is just a one time thing for this quarter, in which many people came to the conclusion that the housing market is no longer as profitable as it once was. It should be interesting to see this cancellation number from both other builders for this quarter and from D.R. Horton next quarter.
Greenspan Says `Worst' May Be Past in U.S. Housing
Former Federal Reserve Chairman Alan Greenspan said the ``worst may well be over'' for the U.S. housing industry that's suffering its worst downturn in more than a decade. Greenspan pointed to a ``flattening out'' of weekly mortgage applications after they went down ``very dramatically.''
This sounds like good news, though many are curious what his estimate is based on. One thing that can't be argued, however, is that Greenspan has a lot of experience.
I wonder if there is any way to get data from these auction based house selling companies. I may make some phone calls this afternoon
So in August the couple elected to sell the home at auction. They hired AllynAuction Co. Inc. of Nahant and paid roughly $8,000 in marketing costs for multiple newspaper ads, 5,000 postcards, and the postage needed to mail them to corporate big wigs, doctors, and lawyers in the area.
Three bidders submitted bank-certified checks of $25,000 and registered for the Sept. 24 auction. With hopes high, the Greensteins said a silent prayer as auctioneer Richard D. Allyn started the bidding at $1 million. No takers.
In the end, a single bid of $830,000 was offered, which the Greensteins rejected as too low.
The current list price for their home: $899,000, down from $1.25 million.
``I want to sell, but I'm not going to give the house away," said Stephen Greenstein, noting that another Nahant home, a three-bedroom, sold through AllynAuction in July for $1,050,000. ``I'd rather wait for the right offer."
In the latest news from the U.S. housing market, a report released this week says that median house prices are likely to decline more than 10% over the next few years in 20 metro areas, including Las Vegas, Tucson, Ariz., and Washington, D.C. The report, by Moody's Economy.com Inc., a research firm in West Chester, Pa., also says that the slump won't end quickly. Indeed, according to the report, prices may keep falling until 2008 or even 2009 in some areas. In all, prices are falling or likely to decline soon in about 100 metro areas, the firm says.
While this sounds dismal, 20 markets out of 461 is not very many. Even with the smaller declines in the other 100 metros, this leaves the majority of the MSA's with appreciating nominal prices.
As some of you may have noticed, on Wall Street today the Dow closed at the highest mark we have seen. This eclipsed the previous mark set on January 14, 2000. While this is essentially a meaningless milestone, I think it is interesting to compare housing stocks during this time. It is a good way to look back at these years and see what housing did for us during this time.
Lennar Corporation (LEN) 1/14/2000 $16.56 10/03/2006 $44.87 KB Home (KBH) 1/14/2000 $24.12 10/03/2006 $43.37 Centex (CTX) 1/14/2000 $23.37 10/03/2006 $53.27 Pulte Homes Inc. (PHM) 1/14/2000 $18.87 10/03/2006 $31.68
This is just a small sampling of what housing stocks have done in the years since the Dow was this high (and doesn’t include dividends paid out or any splits). It should also be noted that some housing companies have been bought up in this time (notably Clayton Homes being bought up by Berkshire Hathaway, the company run by billionaire investor Warren Buffett).
Whether housing will continue to be as strong as it has been in the preceding years that this time frame covers is highly doubtful to me but there is no denying that housing helped us through times when the market itself was falling on it’s face.
I'd like to start collecting and releasing housing data based on our database of listings and sales. I think our dataset is unique enough that it warrants being done.
The data: Every person who lists gets an email sent to them once per week asking them to click if the listing is still up for sale, sold, or no longer on the market. Each listing also has a contact form where questions can be sent.
Data series:
1. The first statistic we could release is the simple "days on the market". This would be calculated by taking all of the sales for a given month, and finding the median (or mean?) number of days they had been listed for sale. I believe this number *should* always be below the NAR/MLS reported number (since about 80% of our listings are also on the MLS)... but MLS listings are often removed and re-added after 45 or 60 days and this may be giving them artificially low reports. Perhaps the HouseJockey metric could be broken down into 2 series based on if the listing is also on the MLS?
2. Another dataset could be the "Realtor’s demand index". It would be based on how many realtor spam emails we see (and block) which get sent through our seller contact forms. The metric would be a little complicated and would likely have to be something like "Realtor spams per 100 unique IP visists" to keep the scale normalized as the web page grows.
I used our database and ran the “days on the market” metric for August and September. August was based on 61 sales and the median was 26.8 days. September was based on 84 sales and the median was 27.4 days.
Any help or feedback on any of this is appreciated. It is difficult for me to put myself in the shoes of the readers/media/general public to decide what type of stuff might interest them. What series should be added? Should I setup tracking for new data? All comments are welcome!
