Monday, September 27, 2010

The dismal state of the new home market

New building permits are near an all-time low:

New housing starts are near an all-time low:

And new home sales are at rock bottom:

The gray portions of the graphs indicate recessions. As you'll notice, a recovery in new home construction has been an essential part of almost all economic recoveries. ...But we're not getting that this time.

Friday, September 24, 2010

New home sales: Worst August on record

New homes in August sold at the second-slowest monthly pace since 1963. Only May of this year was lower. No August on record was lower than August 2010. Fewer homes sold in August than during any month of the 2007-2009 recession. Historically, home building has been an essential part of economic recoveries.
Sales of new homes had their second-worst month on record in August, signaling that the housing market will remain a drag on the economy.

Last month's new home sales were unchanged from a month earlier at a seasonally adjusted annual sales pace of 288,000, the Commerce Department said Friday. Sales were down by 29 percent from the same month a year earlier.

Normally the building industry powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

But housing has been at the center of this downturn and it shows no signs of recovering quickly.

The only time new home sales were slower was in May, when the sales pace was 282,000. That's the worst pace on records dating back to 1963. July's results had been the worst on record, but were adjusted upward.

High unemployment, tight credit and uncertainty about home prices have kept people from buying homes. Government tax credits boosted the market earlier in the year, but those expired in April.

The median sales price in August was $204,700. That was down 1.2 percent from a year earlier and the lowest since December 2003.

Thursday, September 23, 2010

Existing home sales down 19% YoY

Existing home sales for August were up 7.6% month-over-month, but down 19% year-over-year:
Existing home sales bounced back in August after plunging nearly 30% in the previous month.

Sales of previously-owned homes rose 7.6% to a seasonally adjusted annual rate of 4.13 million units last month, the National Association of Realtors reported Thursday. That's up from 3.84 million in July, but down 19% from a year ago. ...

"I would call August's number less toxic — it wasn't pretty but it wasn't the ugliest," said Mark Tepper, managing partner of Strategic Wealth Partners. "We're still down 21.5% from June and sales dropped significantly in July, so the hurdle was just so low that you almost had to beat it." ...

After steadily rising in previous months, the inventory of homes on the market edged down 0.6% in August to 3.98 million units.

But that's enough supply to last 11.6 months. To hit a balance between supply and demand, inventory should only last 4.5 to 6 months, said Tepper.

Such swollen inventory levels will continue to pressure home prices, he cautioned.

The median price of homes sold in August was $178,600, down 1.9% from the previous month and up a slight 0.8% from a year ago, the report showed. About a third of homes sold during the month were in foreclosure. ...

What does this mean for home-buyers and sellers?

"If you're a homebuyer, sell now if you can," said Tepper. "If you're looking to buy, wait a while."

That's because prices are likely to sink another 10% to 25% in the next 18 to 24 months as the economic recovery remains sluggish, said Tepper.

"This whole housing mess is a disaster that's going to last a while," he said.

Tuesday, September 21, 2010

The recession is officially over

The National Bureau of Economic Research is the arbiter of official recession start and end dates. They have determined that June 2009 was the end date for the most recent recession:
The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month. A recession is a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The trough marks the end of the declining phase and the start of the rising phase of the business cycle. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion.

The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.
To reiterate: The recession being over doesn't mean the economy is healthy again. It just means that economic output is no longer receding, thus the word "recession". We've still got high unemployment and economic activity is well below its potential. This graph shows the economy started to grow again in Q2, 2009:

Monday, September 20, 2010

Why haven't banks dumped REO's onto the market yet?

The Wall Street Journal examines the expected flood of foreclosures that hasn't (yet) occurred:
For more than a year, housing analysts and investors—some with piles of cash waiting to pounce on distressed markets—have puzzled over a question: Where is the expected flood of bank-owned foreclosures, or REOs?

The number of properties in the foreclosure or delinquency pipeline has grown to record highs, yet volumes of bank-owned properties have fallen steadily over the past year.

What’s happening?
  • Some delinquent loans have “cured,” either naturally or through loan modifications. Even unsuccessful loan modifications have stretched out the amount of time that it takes to move a loan through the foreclosure process.
  • Banks are getting better about approving short sales, where a home is sold for less than the amount owed, even though the process is still far from seamless.
  • And even when a foreclosure happens, more investors are buying the properties from banks at courthouse auctions, which means that the property won’t show up as REO, even though it could ultimately hit the market.
So can we expect more foreclosures to move onto the market? Eventually, yes. ...

But Ivy Zelman, chief executive of Zelman & Associates, notes that “it’s not going to be a flood” ...

A more likely outcome is that foreclosures stay at elevated levels over a longer timeframe. That could stave off another crash in home prices, but it could lead to several years of no home-price appreciation.

Tuesday, September 14, 2010

New record for bank repossessions

CNBC reports that bank repossessions of homes hit a new record in August:
The nation's banks repossessed a record number of homes in August, according to industry sources. RealtyTrac, an online foreclosure sale site, will release its monthly numbers on Thursday, but sources there confirm the number of repossessions will come in just shy of 100,000 for the month.

That is the highest since the site began tracking in 2005. July's repossession number was the second highest on record. The last highest was 93,777 in May of 2010. ...

Yesterday J.P. Morgan Chase cited the "shadow inventory" of foreclosed properties as one of their primary reasons for pushing back their expectations for a housing recovery as far as 2014. No question, a growing supply of repossessed properties will put further downward pressure on home prices, especially given the current 12.5 month supply of existing homes already for sale.

Monday, September 13, 2010

Half of homebuyer tax credit recipients owe money back to gov't

Apparently, half of the first-time homebuyer tax credit recipients are required to pay the money back, but the IRS isn't sure who they are:
Nearly half of all Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to repay the government.

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home's purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.

Now, the IRS is developing a strategy for separating the 2009 taxpayers who are required to repay the credit from those who are not.

A review by the Inspector General earlier this year found that the IRS could not easily distinguish between home purchases made in 2008 and 2009. That heightened concerns that some claims could be erroneous or even fraudulent, that buyers could, for example, claim their purchase came later than it actually occurred.
Even some people who purchased in 2009 or 2010 will have to repay:
Some who claimed the credit for homes purchased in 2009 and 2010 will also be required to repay it. For instance, repayment is required if the home is sold within 36 months of the date of purchase by the taxpayer claiming the credit, provided there is a gain on the sale.

Friday, September 03, 2010

Cash for Clunkers hurt poor and unemployed drivers

One year later, Cash for Clunkers was still a dumb, economically harmful idea:
IN THE market for a used car? Good luck finding a bargain: The price of “pre-owned’’ vehicles has climbed considerably over the past year. ...

No great insight was needed to realize that Cash for Clunkers would work a hardship on people unable to afford a new car. “All this program did for them,’’ I wrote last August, “was guarantee that used cars will become more expensive. Poorer drivers will be penalized to subsidize new cars for wealthier drivers.’’ ...

When all is said and done, Cash for Clunkers was a deplorable exercise in budgetary wastefulness, asset destruction, environmental irrelevance, and economic idiocy.
The reason Cash for Clunkers pushed up used car prices is because it required that perfectly functional used cars be destroyed, thus decreasing the supply of used cars available to poorer drivers.

Thursday, September 02, 2010

Aid for homeowners may be doing more economic harm than good

Fortune Magazine questions the usefulness of government programs to aid struggling homeowners:
It's easy to see the need for such programs. Theoretically, they keep people in their homes and bring some stability to fragile housing market. But the plethora of programs announced since the housing crisis started have largely been failures, suggesting that any effort to fight foreclosures and boost home sales is going to be a futile one. ...

Not even record low mortgages rates have boosted home sales or enticed a debt-weary public. Of course, this doesn't seem much of a shocker. Experts say home prices — which have fallen by more than 30% since 2006 — are still inflated by 15% to 20% in many areas.

So why try to prop up prices any longer with federal programs? ...

Evidence is mounting that government interference in the housing market might be doing the broader economy more harm than good, at least for the long-term. ...

The few who are buying homes now might likely be overpaying for them. And many latching onto their properties are being convinced it's okay to continue trying to pay off a home they can barely afford — echoes of the homeownership encouragement that led us into the bubble in the first place. ...

Paving the way for a true market correction would not be easy to endure — letting home prices free-fall is a scary thought. But is a gradual decline that could prolong real economic recovery really any easier to stomach?