Expect Housing Prices to Continue to Rise

According to data released by the U.S. Department of Housing and Urban Development, sales of newly constructed single-family homes spiked 11% in June to an annualized rate of 384,000 homes. Consensus had forecast seasonally adjusted sales of 352,000.

While the rate of improvement is consistent with our 2Q09 housing bottom call, the rate of sales is still 21% below the year ago levels. For reference, four years ago (during the height of the housing boom), the sales rate for June was 1,374,000, nearly three-and-a-half times higher than last month.

This report is impressive given what is going on with existing home sales and all of the foreclosure activity, which is sending home prices significantly lower.

I think most people would agree that Obama's $8,000 tax credit for first-time homebuyers is having a positive impact, but what will happen when it goes away in December?

Importantly, the June inventory of new homes dropped to 281,000, an 8.8 month supply at current rates of sale; in May, supply stood at 10.2 months. Most of the excess inventories tend to be concentrated in just a few markets, such as California, southern Florida, Las Vegas and Arizona.

As we look forward, "the construction-put-in-place” data next month will likely suggest that housing will be an additive to GDP versus being a drag as it has been more recently.

Comments

[James Quinn:]

“National New Home Sales, on a monthly basis, don’t even add up to half of the total foreclosure activity in California alone in a single month.”

Jul 28 12:49 PM

[HunterGVL:]

Housing prices to rise?

Simply ridiculous. Once the Option ARMs and ALT-A, and Risky Jumbos start defaulting in earnest, the housing industry will see real capitulation. I see friends and relatives still hanging on to the belief that the 30-50% declines they have already experienced are, "The Bottom."

I routinely and calmly explain how things are going to get much worse along the lines of another 20+% to the downside at least and probably even worse. The truth is that if you are just this side of foreclosure or bankruptcy now, then it is already too late and your fate is sealed as sure as the exotic and corrupt mortgage market has jumbo legs to the downside.

Mr. McCoullough must have an interest in selling you REITs. That is the only thing I can think of that would make him issue such an absurd statement.

Jul 28 12:57 PM

[wshed:]

I agree with all of the above who have problems with this post. It is, of course, always possible that a bottom has occurred in the housing market, but Keith McCullough's portrayal of the data suggest he is not just fooling himself by trying to fool others. No mention of the fact that prices are still dropping despite the uptick in volume. No mention of the statistical error margins in the data which make the "optimistic" month over month numbers much less credible than the pessimistic year over year numbers.

Jul 28 01:16 PM

[Madrid:]

I have a comment about a recent experience I had bidding on a house, and why think that there may be another destructive bubble re-forming in some real-estate markets:

I live in Northern New Jersey, and I am looking for a 3 bedroom house. In the past 5 months, I've lost houses by underbidding-- I bid 475K and someone bid 500K for example on a small house that was priced at 510K. So on this house that I bid on this weekend, I was determined to not underbid. The asking price was 499K and I knew there were other offers that were coming in, so because we really liked it and had missed a bunch of other houses, I bid full price.

Well guess what-- I still lost the house because some idiot (more of a fool than me) bid 550K, and told the owners that if the bank appraises the house at less than 550k, the buyer will pay the difference in cash!

Note that this is a few months after the worst real estate crash in history. I saw an interview with Robert Shiller recently, and he said that in some parts of the country (Boston for example), people have not given up the mindset of speculation, and I think he is right. There is going to be yet another speculative bubble in real estate in some markets-- the Northeast for example, and while the banks may not be playing along at the moment, sooner or later they will. And it will be the good times all over again, that is, until the financial market crash again...

Which just blows my mind, and shows that Americans never learn.

Jul 28 01:41 PM

[JACV:]

Another fellow that hasn't got a clue of what is happening. Unfortunately, lots a people write this days without a clue of the economic macro scenario. How deceptive this can be for a less informed person.

Jul 28 02:03 PM

[cbc:]

Keep those shirts pressed, ties straight, hair groomed and those glasses that make you look smart in the latest style. They might keep you out of digging ditches for the rest of your life. Good luck.

All the comments above are intelligent and well thought out. I bet all of you comment makers did not know that you have the qualifications to make predictions on the housing market. You just need the right "ensemble" and you are on your way to writing articles for financial news outlets. Cheers all.

Jul 28 02:19 PM

[lower98th:]

In my region (Florida) house prices have risen somewhat in the below-$250,000 market as the inventory of cheaper, market-ready foreclosures dropped following the "foreclosure moratorium." This drop in inventory should be temporary. Many neighborhoods have significant numbers of vacant/abandoned houses, indeed more than those legally foreclosed to date, waiting to hit the market. I think we may be making a bottom, but we have more to work through before any housing rally. "Listings," "inventory," and "foreclosure sales" are only down here because REOs and soon to be REOs have been held off the market. And the volume of high priced homes, with more patient, well-heeled sellers, rises as that market continues to be in a chilly, if not frozen, stalemate.

Jul 28 02:26 PM

[wshed:]

cbc,
I think this guy is a glorified realtor. I have been a realtor, so I can say that there is a widespread belief in the profession that the important skills to master are grooming, smiling, and helping people get past their fear of paying too much for real estate. Their trade organization, the National Assoc. of Realtors, provides dishonest statistical analyses and forecasts to help with the latter. Mr. McCullough is in that tradition.

I know a number of realtors in my area who are hurting because sales are down and because they bought properties late in the boom on the developing fringes of our urban area, where the vacancies are especially high. When I run into them lately, they waste no time before changing the subject to how things have bottomed out and are definitely turning up. I think they had a meeting and agreed to stop telling the truth.

-bob

Jul 28 02:49 PM

[Jeff Nielson:]

There is no possibility of U.S. house prices rising.

There are millions of foreclosed homes being held off the market by U.S. banks. There are over 20 million empty homes.

Retiring baby-boomers are now facing grossly under-funded retirements, with government benefits certain to be CUT. Their only assets to make up this short-fall is real estate - meaning huge amounts of inventory being dumped on this market over the next DECADES.

Jul 28 03:17 PM

[31October:]

I'm not going to point out SEASONAL variances from people relocating while school is out, or the fact that the miniscule numbers are a sidewalk bounce from the top of a downtown (REIT-owned, CMBS-traded) tower... That would be low-hanging fruit.

The telling detail about perspective is from HunterGVL. GVL is the common abbreviation for Greenville, SC. The only other SA poster from the same town is a real estate agent.

"Hunter" is expecting and prepared for the worst.
The realtor says demand for housing is booming. From 2002-2006, the number of new real estate licensees in SC increased an average of 45.3% annually. Sort of like lawyers creating injustice where there is none, reality gets distorted.

But then, has a realtor ever admitted real-ity?

Jul 28 03:30 PM

[enigmaman:]

Home prices will rise when they stop falling, when is anybodies guess, home inventory numbers are not reflecting reality because they do not include the hundreds of thousands of homes banks wont foreclose on right now, its better for them to keep the inflated asset on the books rather then report the actual market price once its to market. Also why are prices going up, who are the buyers, from what Ive read about 25% of sales are first time home buyers using the 8000 credit helps, investors make up the majority of buyers so how does that help the real estate market. Without owner occupiers buying home prices are not finished going down. When investors had their full then we will see how strong the market really is.

Jul 28 03:33 PM

[cbc:]

Bob,
I agree the author is likely a realtor or associate of some sort. The only thing I could add is the NAR had that meeting about the truth a long time ago. Luckily their lies helped me sell my real estate at the top of the market for an obscene amount and now I live overseas and day trade. I know I am one of the few lucky ones. If only more of these guys realized the negative impacts their BS has on peoples lives.
Cheers


On Jul 28 02:49 PM wshed wrote:

> cbc,
> I think this guy is a glorified realtor. I have been a realtor, so
> I can say that there is a widespread belief in the profession that
> the important skills to master are grooming, smiling, and helping
> people get past their fear of paying too much for real estate. Their
> trade organization, the National Assoc. of Realtors, provides dishonest
> statistical analyses and forecasts to help with the latter. Mr. McCullough
> is in that tradition.
>
> I know a number of realtors in my area who are hurting because sales
> are down and because they bought properties late in the boom on the
> developing fringes of our urban area, where the vacancies are especially
> high. When I run into them lately, they waste no time before changing
> the subject to how things have bottomed out and are definitely turning
> up. I think they had a meeting and agreed to stop telling the truth.
>
>
> -bob

Jul 28 03:38 PM

[JPDX:]

I agree with post from Madrid. That is certainly an interesting theory that a future bubble could start inflating. A lot of people are now saying houses are cheap. I hear this all the time, 'they are cheap, rates are low'... etc. If the media catches on to this and drives it forward for years, moods will eventually shift. In 2 or 3 years people will be thinking of other things besides the financial crash of 2008, they will only speak of it in hindsight and the bad times now won't seem so bad in the future. That all could drive a new bubble if people think they can make money on housing. Well, let's just hope us homeowners who bought high in 2006 or decided not to sell in 2005 will not forget. I will surely be selling if a new bubble appears and staying away from mortgages for good.

Jul 28 05:41 PM

[bricki:]

There was a small non-seasonally adjusted increase in home prices this month.

Seasonal adjustments wipe out this increase. Furthermore we have a significant amount of pressure on house prices due to the $8,000 tax credit, and a pressure on sales due to the need to close by Dec 1 in order to collect this credit. With this distortion in the market there is no way to say average home prices are truly increasing.

One factor to keep clearly in mind though is that local conditions cause a wide variation in real estate conditions. In the NY metro and Boston areas the decline has been far less than in some other areas because of the local economy and constraints on land use that have prevented excess supply at the levels present elsewhere. And of course there are areas that never experienced the bubble at all, so they don't have to fall to get to historical levels.

But in other areas things are dire indeed. Local supply excesses on the order of two years, bad economic conditions and overhang of Alt-A failures to come. These areas will suffer for years to come.

So i you are considering buying a home, think long and hard about the market you are buying into. There will be lots of divergence from market to market, possibly more than we have ever experienced.

If you are thinking about macro averages and the long term affect on the economy it is hard to be positive about housing. There may be a few hot spots that recover early but they will not be enough to carry the economy as a whole.

Jul 28 08:07 PM

[awake09:]

If anyone missed this very relevant post by wshed, here it is again---


On Jul 28 02:49 PM wshed wrote:

> cbc,
> I think this guy is a glorified realtor. I have been a realtor, so
> I can say that there is a widespread belief in the profession that
> the important skills to master are grooming, smiling, and helping
> people get past their fear of paying too much for real estate. Their
> trade organization, the National Assoc. of Realtors, provides dishonest
> statistical analyses and forecasts to help with the latter. Mr. McCullough
> is in that tradition.
>
> I know a number of realtors in my area who are hurting because sales
> are down and because they bought properties late in the boom on the
> developing fringes of our urban area, where the vacancies are especially
> high. When I run into them lately, they waste no time before changing
> the subject to how things have bottomed out and are definitely turning
> up. I think they had a meeting and agreed to stop telling the truth.
>
>
> -bob

Jul 28 09:15 PM

[awake09:]

The facts have become nothing but political tools for whomever wants to be elected or re-elected. The Obama cultists will trumpet anything that can be scanned to look positive, i.e. prove that his Stimulus worked. This is also true for the investors who are bored with sitting out the RE market. They remember the fever days and want to start the human buying-wave again. If they succeed, I'll sell them my 2006 California turkey, and consider my investment rescue a hard-learned lesson in reality.


On Jul 28 03:17 PM Jeff Nielson wrote:

> There is no possibility of U.S. house prices rising.
>
> There are millions of foreclosed homes being held off the market
> by U.S. banks. There are over 20 million empty homes.
>
> Retiring baby-boomers are now facing grossly under-funded retirements,
> with government benefits certain to be CUT. Their only assets to
> make up this short-fall is real estate - meaning huge amounts of
> inventory being dumped on this market over the next DECADES.

Jul 28 09:21 PM

[victoralpha:]

It is interesting that it really is a tax credit that stimulated these numbers not to mention a bit of pent up demand during the busiest time to buy. The demand will wane and the tax credit will expire and the mini bubble that will be created by this will pop.

In order to sustain any real growth/recovery people have to get back to work ( productive work) and that is not happening. I forgot one other small factor, BANKS HAVE TO LEND MONEY. I thought that is what the stimulus was for.

This truly is trader's bliss, this is also passive invester nightmare part 2 in the making.

Jul 28 10:26 PM

[markg:]

I'm not a bull or bear, but I will say that the bears make no better rational argument than the author.

There are several markets, southern California being one, where the after-tax payments will be very close to the monthly rental. This sort of agrees with the notion that houses should be purchased as a place you can live, and maybe a long term investment. And in case anyone cares to look, the affordability index is above 2002 levels.

Jul 29 01:13 AM

[Arthur Hau:]

Is this supposed to be a good news or a bad one?

What is so good about housing prices rising in the near future?

A damn small two-bedroom apartment in mid-town Manhattan still costs 1.2-1.5 million dollars. As a middle-class myself, I am unable to save even half of that amount after working so many years.

People need houses with reasonably low prices to retire. High real estate property prices will benefit no one, but the blood sucking banks that had committed mistakes after mistakes in underwriting low quality loans, the blood thirsty speculators who had over-collateralized and over-leveraged to gamble their lives away, irrational homeowners who have poor credits and who cannot afford to make mortgage payments for their over-priced homes,...

Forcing the real estate market not to adjust by artificial suppressing the interest rate prevents the market from correcting itself.

After all to most people, high real estate market prices mean higher living cost and higher cost of conducting businesses.

By the way, the current housing bubble was not only a result of Fannie and Freddie. It was also a by-product of an extremely low interest rate environment that had lasted for an extended period of time. Since the internet bubble and 911, the average Fed Fund rate was only about 3 percent which deviates significantly from its reasonable long-run average of 5-6%.

A super-low interest rate not only created a major bubble in asset markets, but also affected the investment and loan underwriting practices of banks and other financial institutions. To earn a few more basis points, financial institutions even tried to create high-risk securitized assets and derivatives products targeting not only to institutional investors but sometimes even to consumers.

Lowering the interest rate is NOT a solution, but a pain-relieving drug. The more you use it, the less effective it becomes and the more harm it will do to your body in the long-run!

Jul 29 01:46 AM

[Madrid:]

I would like to agree with the last comment. I think it's a terrible thing if, after so much damage to the markets caused by speculation, housing prices begin to shift upwards at this point. As Buffett says, houses are not ultimately investments-- they are places where people need to live because of their employment, family, etc., and when people are too speculative about housing, it ultimately hurts those people who are trying to use a house for its primary purpose, namely a place to live and possibly raise a family, not to make an easy 100k by [assing it on to the next sucker.

Jul 29 09:23 AM