Blog :: 2008

Crescenzi: What Home Inventory Plunge Means

The number of unsold new homes fell 34k in November, the most ever. There are now 372k unsold new homes for sale, significantly below the peak of 570k in June 2006.

The level is approaching normal. The supply problem is in the existing home market. It lags but it's next: the underbuilding of homes relative to population growth will inevitably result in the filling up of those homes, whether through sale or rental--humans need shelter. I would expect inventories to decline at least 500k to 750k in 2009 because of the population/underbuilding issue. At least 500k will disappear from the underbuilding idea and a further 250k (at least) will result from low mortgage rates and incentives from Barack Obama to spur home buying (4.5% mortgages or tax credits or both).

The math on why this is happening is simple: the construction of new homes has fallen below that of household formation. Housing starts have recently been at about 600k annualized, which works out to about 400k new dwellings, because many new starts are restarts--tear downs and such. Birth statistics and Census Bureau data indicate that household formation will on average run at a pace of about 1.2 million in the current year and immediate years ahead, owing to population growth of about 3.0 million.

This means that home inventories--new and existing combined--could fall by at 600k over the next year, depending on the extent of household formation (it slows during recessions, although it is only a delay in the inevitable--kids won't live home with their parents forever and roommates go their separate ways, eventually). Shelter is obviously a basic need, which makes the inventory call a bankable top-down theme for 2009.

More: Click for Latest Economic coverage ...

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Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market." Crescenzi is a contributor to RealMoney.com."

Existing-Home Sales Decline in Economic Uncertainty

WASHINGTON , December 23, 2008

Existing-home sales weakened against a backdrop of an eroding economy, according to the National Association of Realtors®.

Existing-home sales - including single-family, townhomes, condominiums and co-ops - fell 8.6 percent to a seasonally adjusted annual rate¹ of 4.49 million units in November from a downwardly revised level of 4.91 million in October, and are 10.6 percent below the 5.02 million-unit pace in November 2007.

Lawrence Yun, NAR chief economist, expected a decline. "The quickly deteriorating conditions in the job market, stock market, and consumer confidence in October and November have knocked down home sales to another level. We hope the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001," he said.

"It is, therefore, imperative to provide incentives for homebuyers to get back into the market. It also depends on how effectively Congress and the new administration can help facilitate the short sales process and unclog the mortgage pipeline - impediments remain for some buyers with good credit," Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.09 percent in November from 6.20 percent in October; the rate was 6.21 percent in November 2007. Last week, Freddie Mac reported the 30-year rate fell to 5.19 percent - the lowest on record since the series began in 1971.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said it's crucial to enact sufficient housing stimulus to spark an economic recovery. "We need more than low interest rates to encourage enough buyers to enter the market and meaningfully draw down inventory, which would stabilize home prices - that, in turn, would help the economy to recover," he said.

"We should extend the first-time buyer tax credit to all homebuyers and eliminate the repayment feature, and make permanent the higher loan limits that are vital in high-cost markets - the faster we do this, the faster housing and the economy can recover," McMillan said.

McMillan said NAR is grateful that the Treasury, the Federal Housing Finance Agency and the Federal Reserve have been working to bring interest rates down on most mortgages to historic lows.

Total housing inventory at the end of November rose 0.1 percent to 4.20 million existing homes available for sale, which represents an 11.2-month supply² at the current sales pace, up from a 10.3-month supply in October.

Despite an overall softening in sales, there has been a solid trend of rising activity in California, Nevada, Arizona and Florida markets. "Sales are rising only in areas with large numbers of distressed properties as bargain hunters take advantage of discounted home prices," Yun said.

The national median existing-home price³ for all housing types was $181,300 in November, down 13.2 percent from November 2007 when the median was $208,800. There remains a significant downward distortion in the current price from a large number of distress sales at discounted prices; the median is where half of the homes sold for more and half sold for less.

Yun cautioned that there will be negative consequences if housing stimulus is delayed. "Falling home prices would lead to faster contraction in consumer spending and further deterioration in bank balance sheets. More importantly, falling home values would lead to higher loan defaults, including those recently modified distressed mortgages."

Single-family home sales fell 8.0 percent to a seasonally adjusted annual rate of 4.02 million in November from a level of 4.37 million in October, and are 8.8 percent below a 4.41 million-unit pace a year ago. The median existing single-family home price was $180,800 in November, down 12.8 percent from November 2007.

Existing condominium and co-op sales dropped 13.0 percent to a seasonally adjusted annual rate of 470,000 units in November from 540,000 in October, and are 23.1 percent below the 611,000-unit pace in November 2007. The median existing condo price4 was $185,400 in November, down 15.5 percent from a year ago.

Regionally, existing-home sales in the Northeast dropped 12.0 percent to an annual pace of 730,000 in November, and are 18.0 percent lower than a year ago. The median price in the Northeast was $257,700, down 0.1percent from November 2007.

Existing-home sales in the Midwest fell 7.4 percent in November to a pace of 1.00 million and are 16.0 percent below November 2007. The median price in the Midwest was $142,400, down 11.2 percent from a year ago.

In the South, existing-home sales dropped 10.9 percent to an annual pace of 1.64 million in November, and are 17.6 percent below a year ago. The median price in the South was $154,500, which is 10.6 percent lower than November 2007.

Existing-home sales in the West declined 4.3 percent to an annual rate of 1.12 million in November but are 17.9 percent higher than November 2007. The median price in the West was $242,500, down 25.5 percent from a year ago.

For more information, please visit: http://www.realtor.org/research/research/ehsdata

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      MORE...

      Tis The Season!

      The holiday season is in full swing and Chistmas is coming fast! The holidays can be a busy week for real estate in our area. With 5 snowfalls this fall we can only hope for a white Christmas and bunch of visitors in town. Business continues to be steady although we are historically slow the few weeks leading up to Christmas. If you have not seen interest rates have come WAY down and it seems is helping some to get off the fence. Many of our agents are working hard with buyers who are still looking for deals, but they are working! 2009 is around the corner and if my crystal ball is correct we will see a nice turn around in the real estate market which should be welcome news to sellers and Realtors alike. Now get out and finish your shopping!

      Awesome Video!

      I love YouTube and the videos that you can find on there. We talk a lot to our agents about persistence and not giving up in this tough market. Here is a video of someone who definitely did not give up and used his skills to get the job done. Take a look and you will be amazed!

      httpv://www.youtube.com/watch?v=vyxhdKLSbtU

      Housing Prices Fall Below Replacement Costs

      Housing consultancy Global Insight reports that nationwide, housing prices are now 3.8 percent undervalued, based on total market value. It says values fell at a faster pace in the third quarter after stabilizing earlier in the year.

      According to Global Insight's calculations, prices are now 6.5 percent below their 2007 peak. They fell at a 6.9 percent annual pace affecting 241 of the 330 metropolitan areas analyzed by Global Insight. That's up from 150 metro areas affected in the second quarter.

      Contraction is most severe in the Southeast and Southwest with only the Pacific Northwest remaining overvalued, Global Insight says.

      Home prices fell more than 10 percent in the third quarter in nine central California communities. The Central Valley communities of Merced, Stockton, and Modesto have seen property values fall to less than half their 2005 value. Twenty-nine metro areas in California, Florida, and Nevada - at one time among the most overvalued - have seen price declines in excess of 30 percent. Similar steep price drops are occurring in Michigan, northeast Ohio, the southern metro areas from Charlotte to Atlanta, as well as in New England.

      "Weak economic conditions and wary consumers continue to hold the housing market back. Although many areas are seeing home sales increase, it is largely due to foreclosure homes being snapped up at significantly discounted prices. As the inventory of these homes is removed from the market, prices will remain on a downward path," predicts Jeannine Cataldi, senior economist and manager of Global Insight's Regional Real Estate Service.

      Source: Global Insight (12/03/2008)

      Snow Report in Maggie Valley North Carolina

      Hello All! We woke up to another snow fall today. It is the 4th snowfall we have had this fall! I have had a theory that we were to have a good (or bad depending on how you look at it) winter. Our drought situation has continued so my theory has been that we would have lots of snow which will assist us with the drought situation. I hope that I am right and with 4 snowfalls in the months of October and November I like the odds.

      Today's snowfall did cause some issues including several tractor trailers jack knifing and of course many school closings. WIth school closed my kids were out in the yard first thing this am. We did not get a huge snowfall, but enough to get the sled going down the hill. If the theory holds true we will be doing a lot of sledding this winter! Come on up and join in the fun!

      Here is a short video of the snow!

      httpv://www.youtube.com/watch?v=EwA96kqkqew

      Real Estate in Haywood County North Carolina

      It has been a bit since I really sat down and expressed what in happening in regards to Real Estate in Haywood County North Carolina. I would like to say that we are taking it all in stride, but I will not lie. It has been a challenge. All year we have been looking towards the next "busy time" that will bring an influx of customers into the mountains to buy that special get-a-way. It started in the Spring, the flowers and trees started to bloom and we said "ok, it is coming. The visitors will be back and the sales will increase, but the market did not pick up. So , we said school is not out...When it gets out "they will be back" . Well this went on all Spring, Summer, and now fall. Unfortunately, we never had that "rush" of customers.

      I guess we should consider ourselves lucky that the market continued even though it was slow. I know there are agents out there that are having a very tough time. Our company has maintained a steady flow of sales. We are ranked #3 in our county and have had over 80 transactions to date (typically we do 150 or so in a year). We have about 15 transactions in the pipleline so we are better off than most. That said, it has still been a challenge to get from month to month. When your company is set up with an overhead based on a average of 150 transactions and you only do half of that, it creates a problem. I believe we have been proactive for months and knew that the market would be slow, but nobody knew that the global economy would crumble around us.

      All parts of the economy have been affected, but is there a profession hit harder by this than the 1.2 million Realtors in the US? We hear daily of bailouts for the banks, for other financial sectors, for the automakers, soon the airlines, and on and on. It has been the housing downturn that has caused all this so who do you think is affected the most? Yes, anyone associated with real estate especially the Realtors. Are we asking for a bailout? No way! I do not think it is the way our professionals operate. In good times we are accused of making to much money for doing very little work and well folks it is just not true. This is my "second" profession and I can tell you the professionals in this business work as hard or harder than any. Throw in a housing crisis and we have had to work even harder for little or no pay. We come to work each day and try to find answers to a general lack of buyers. How do we get people off the fence, what incentives do we offer, and how do we reach more potential buyers are just some of the questions that we face.

      I hope that the bailout monies make it into the system, the financial markets rebound, and the housing industry rebounds. If it does not the unemployment numbers will go up and there will be many that are not accounted for such as Realtors who are independent contractors and many times are not see as having "real jobs". Call your local Realtor today and tell them you appreciate them and send them a lead! :) Their families are depending on it!