Pete Flint’s Blog

I was reviewing the latest national housing numbers and thought I'd summarize some of my thoughts on what is going on.
Firstly the data:

• The recent rally in home sales has slowed, down 2.7% for July to August, but up 3.4% over the year
• Home prices also fell down 2.1% month to month, down 12.5% for the year
• 30% of sales are from first time home buyers, 31% are distressed properties
• Inventory levels are falling down to 8.5 months, down from 9.3 in July 2009 and 10.6 from a year ago.

Some charts:




My perspective:

• Sales Volume: I don't think the month to month dip in sales is a significant negative for the market as a whole. As you can see from the above numbers, July was a surprisingly strong month, driven no doubt in part by the first time home buyer tax credit expiring at end of Nov. It feels like we're making slow, but steady progress towards recovery and these month to month variations are natural. I don't expect a big jump in the near term.
• Sales Prices: With so many challenges in the overall economy, it is tough to expect any significant positive changes in prices in the near term. The recent run up has stopped and I can see prices bouncing along the bottom for some time to come. I'm positively surprised that months inventory has fallen to 8.5 months, which means that excess inventory that has been pushing prices down is being taken off the market. We are not far from bottom, but with so many foreclosures to hit the market and large amounts of negative equity and unemployment, home prices will probably fall a little more before stabilizing.

All this said, national real estate data is not that useful for home buyers and sellers, it is the local real estate data that give the real picture. So go, check out Trulia's local real estate statistics.

New from the WSJ . With all the troubles in the home builder market, some consolidation was inevitable. Pulte said the deal would result in cost savings of around 350 million dollars a year.

Pulte Homes Inc. (PHM) will acquire Centex Corp. (CTX) in a $1.3 billion stock deal that the companies say would form the largest U.S. home builder, as the sector looks to stay afloat amid the still-worsening housing market.

Home builders have been struggling to navigate the worst downturn in decades, made worse by rising unemployment and the financial crisis, which has weakened the availability of credit for would-be buyers and hurt consumer confidence.

New home sales unexpectedly climbed for the first time in seven months in February, the most recent month with data available, but prices continued to tumble. Sales were still 41% below a year earlier as rising layoffs push people from making big purchases and inventories remain high.

The combined company will be the largest U.S. home builder by market capitalization and volume. Pulte and Centex said Wednesday that the combined company would have a market capitalization of $4.1 billion, beating out D.R. Horton Inc. (DHI), the largest home builder by volume, with a market capitalization of $3.4 billion.

Consolidation is no surprise given the massive reduction of new home sales, see chart below:

New Home Sales Annual Sales Rate, Seasonal Adjusted

Chart via Census Department

As the Industry adjusts to a very different market, these changes are very natural.

I had dinner with some friends last night and one of them had just put in an offer for a 2 bed condo at the The Infinity in San Francisco and I thought I'd do some research on how the market was doing and get your opinions. His rationale for making the purchase at this time was the following:

• Given the low financing available for 30 year fixed mortgages, he is able to lock in a low rate, that was lower than paying rent in SoMa for similar places
• He went on a tour off the condos and loved the style, views and quality of the building.
• He felt he was able to negotiate a good deal and get a good price per square foot rate compared to overall San Francisco condo prices and also get a few extras thrown in
• As a first time home buyer, he was about to qualify for the $8000 home buyer tax credit and the $10,000 california home buyer tax credit and save a little more.

We all pretty much agreed, that while San Francisco condo prices could well fall in the next 12 months, the upside of low rates, quality of life and good prices made 2009 a good time to make this sort of purchase.

Chart of SoMa price per square foot.


That said, I'm sure there is more to the story and if you're not concerned about losing your job and can afford one of these luxury condos in San Francisco, what else should a prospective home buyer be thinking about.

I looked around on Trulia Voices and found the following insights:

From this question on sales at Infinity 2, it looks like there is a lot of demand and some discounting going on:
"prices are quite competitive actually and are lower than when Tower 1 first started out" From Mark Choey
And the views on diffierent units seems to make a big difference in demand/quality:
"Be care of what your unit will look out on as new construction is planned for the west side and Tower Two's best side is East for views. Be sure to ask about south side of building as well." from Sally Roesenman
"There are significant differences among prices in the corner stacks between the 5th and 30th floors. The fifth floor is just above street level, while the 30th offers great views..." from Jason Chapin

While my friend is buying a place at the Infinity, what about all the other buildings in the area? I'm curious about the pros/cons of different buildings like One Rincon Hill.

According to NAR data out this morning, home prices and home sales fell in January 09, to new lows.

Existing-home sales fell 5.3 percent to a seasonally adjusted annual rate of 4.49 million units in January from a level of 4.74 million units in December, and are 8.6 percent lower the 4.91 million-unit pace in January 2008.

The national median existing-home price for all housing types was $170,300 in January, down 14.8 percent from a year earlier when the median was $199,800.

Here is a view of the last 12 months:



The NAR says that this is buyers are sitting on the sidelines and waiting to see what stimulus packages are available and that distressed sales are skewing home prices. The full release here .

What do you think?

How much further have we got until we hit bottom on a national level?

What is going on in your local market? Any bright spots?

How is the uncertainty around employment impacting these numbers?

Will the stimulus have a meaningful impact?

Tell us what you think!

According to the Standard&Poor's/Case-Shiller via the AP

"U.S. National Home Price Index plunged 18.2 percent during the quarter from the same period a year ago, the largest drop in its 21-year history. Prices are now at levels not seen since the third quarter of 2003.

In the month of December, the Case-Shiller 20-city index plunged 18.5 percent from December 2007 levels, while the 10-city index dropped 19.2 percent.

Prices in the 20-city index have plummeted 27 percent from their peak in the summer of 2006, and the 10-city index has fallen more than 28 percent."

Pretty dismal news. Dallas and Denver seem relative bright spots.

Full table here:

S&P CASE-SHILLER HOME PRICE INDEX

Percentage change in home prices in December 2008 compared to year earlier in each market.

SOURCE: Standard&Poor's and Fiserv
NOTE: Data through December 2008

It’s going to be a big week for President Obama as he announces on Wednesday his plans to help to solve the housing crisis. This follows last week’s Economic Stimulus plan that received a luke warm reception in the stock market and elsewhere. Within the package announced last week the White House committed to spending $50Bn to try to help reduce mortgage payments and halt foreclosures. An $8000 Tax Credit was also announced.

Eliminating an increase in the number of foreclosures has got to be at the top of the President’s agenda, it’s almost impossible to see a stabilization of housing prices until we stabilize foreclosures. To me the housing and economic crisis started with foreclosures and will end with foreclosures. Obama has clearly got his work cut out. With rising unemployment and falling GDP, keeping people in their homes which are worth less than they paid for them is an uphill battle, but we won’t see a recovery until the issues are worked through the system.

It will be interesting to see what Obama comes up with in Phoenix this week. I wonder if he'll take on board any of the housing policy suggestions from the Trulia Voices community. The $8000 Tax Credit will help to give prospective home buyers the incentive they may need while home prices get increasingly affordable and rates steadily improve. But I’m disappointed it was reduced from the anticipated $15,000 that we heard at the beginning of last week. However, the big money is the $50Bn earmarked for the foreclosure plan, this looks far too little too late. It’s a mere 5% of the $1+Trillion being proposed for the TARP and stimulus plan, while we’re used to seeing telephone sized packages thrown at the problem, it’s hard for me to see how it could make a significant dent in the foreclosure problem.

I was asked at a panel discussion last week when we will expect to see the first signs of a broad market recovery. Without any particular research, I pulled out the number 18 months to the panel, ie spring 2010, this is more based on intuition rather than any hard economic data. Among the participants in the panel, I was at the opptomistic end, with many people suggesting 2-3 years.

Now this is a pretty broad question and refers mostly to the stock markets, however, I'd expect to see some earlier signs of recovery in some regional housing markets that started their declines in 2006 as well as a few stocks which have been oversold in the panic. I dont expect valutions to return to the highs of 2007 in 18 months time, only that we'll start to see steady stock market valuation increases from this point onwards.

I have been trying to do some research on backing up this comment and came across this chart. From here.



From looking at this, it looks like if we were to compare the blue line (today's market) with the grey line (1929 recession), then we'll see the market stablize in about 500 days time. This is approximately 18 months time (~550 days), so based on what I know today I'm sticking to my prediction. I'm only hoping that it will happen sooner.

So what do you think?
I'd love to see any similar charts like the above for national and regional housing markets. Has anyone got any?