Home Buying Slips in October: Now What?

The Credit Suisse (CS) National Survey of monthly real estate traffic throughout the country by city and region has been released, and the results show continued weakness despite the home buyer's credit that expired. This credit scheme was recently extended for another several months (along with tax write offs for current homeowners who meet basic residence longevity criteria).

October traffic slipped from September levels as a whole. The stats do not tell the whole story, however. Traffic early in October was above September levels as last-minute buyers driven by the tax credit hurried to close deals. Later in the October, traffic declined significantly. There is concern that with credit still tight, many first-time buyers have already acted and there will be fewer people participating in the extended tax credit purchase program. Consensus opinion indicates that the tax credit pulled forward demand and that there will likely be a lull in buyer traffic at the end of 2009 into 2010.

A key to what happens next will be homebuyer traffic in late November. If traffic levels improve from current numbers, it would be an indication that the slowdown in traffic may void the consensus view expressed above for early 2010 and beyond.

Selectively, there was a meaningful decline in traffic within the Minneapolis and Seattle areas, whereas most other markets were relatively stable. The best market according to key price and traffic data in October? Las Vegas. The highest levels of traffic were experienced in Ft. Meyers, Orlando, Los Angeles, the Inland Empire and Washington, D.C. Upward pricing trends were noted in Washington, D.C., Ft. Meyers, Los Angeles, Sacramento, San Diego and San Francisco. That stated, the stats strongly indicated that stability and slight improvement in the housing market remains generated on low-end homes and foreclosure transactions. Investors have stepped up to the plate (with a high percentage using cash) to buy distressed property.

Interestingly, as investors gather up single family homes, the rental vacancy percentage is trending higher as renters who qualify for the tax credit, or see a real deal on a short sale/foreclosed home, flee their unit to become homeowners.

It is incumbent for the investor to keep abreast of actual trends versus media hype and carefully monitor home ownership data and the predicted next wave of foreclosures coming in early spring of 2010. Another piece of data to be mined will be the number of homeowners who had their mortgage reset this year and failed to meet the renegotiated terms. Estimates of upcoming flops are as high as 70%. This may set in motion a new housing price downdraft, with the government out of ammunition to stop further mayhem. Investors must be alert to data on all major aspects of this sector.

Comments

[chris coonan:]

Keep in mind that even in good real estate markets, this not being one of those, there is VERY LITTLE home buying around the holiday's. November - Superbowl will be extremely slow, except for those vulture investors. Expect bad reports for the next 3 months.

Nov 12 05:42 AM

[Thomas Smic...:]

As a contributor to this report, CS takes seasonally adjusted trending into consideration. Thanks for stating your observation. I should have stated as such in the article..


On Nov 12 05:42 AM chris coonan wrote:

> Keep in mind that even in good real estate markets, this not being
> one of those, there is VERY LITTLE home buying around the holiday's.
> November - Superbowl will be extremely slow, except for those vulture
> investors. Expect bad reports for the next 3 months.

Nov 12 08:27 AM

[Steven R. S...:]

Good, timely, on point article. Here is a companion thought: The residential Real Estate Cycle under normal market conditions, peaks in the Summer months and starts declining in the Fall months, until it bottoms out during the Winter months and picks back up in the Spring.

The exception being the Winter playgrounds, ski or golf locations, where volumes peak during their high season.

So, the slow down is not unexpected by those who work in this sector. Sales volumes were probably actually higher than they would have been without the incentives, as the beginning of the article indicates.

Sales Volume and Prices of new homes are propped up by incentives of all kinds, including Buy Downs on the interest rate, seller paid Closing Costs, free Upgrades.

None of the national databases, surveys or reports take into account any Incentives or Concessions on Volume or Pricing.

Which means, once the incentives are gone, once builders find that they are competing now with forclosures they packed people into 3-4 months ago, Prices themselves will continue downward, until a Supportable Demand level is reached.

Markets that have dropped 40%+, like Las Vegas, may have pent up demand factors going on, in which case Prices begin to rise again.

Markets where Price levels are still above the Supportable Demand levels, will continue downward, only the rate of change becomes the question.

Nov 12 12:02 PM