The Housing Headwind

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by: Kevin Mahn
Recent declines in home values have confirmed our belief, at Hennion & Walsh, that the real estate market recovery (or lack thereof) could be one of the areas that hold back any significant economic recovery gains in 2011. This belief stems not only from a review of existing sales activity in the residential real estate market but also from the historic number of defaults and foreclosures that took place in 2010 leaving a large inventory of available homes.

Two statistics that we generally look at when we assess the housing market are existing single-family home sales and prices as well as pending home sales. A review of these two data points, as provided by the National Association of Realtors® as of February 2011, shows that the real estate recovery has not only stalled but has even started to retreat. While certain areas of the country have experienced an increase in median sales and prices with respect to existing single-family homes over the last year (Ex. Baltimore, Cincinnati, Miami, Phoenix, Washington DC), the U.S., on average, experienced negative year-over-year sales and prices over the last one year period through the end of February 2011.

February Metro Area Existing Single-Family Home Sales and Prices

*All data reported herein is unadjusted for seasonality
Median Price
% Change from 1 Year Ago
#
MSA
Feb-10
Feb-11
Price
Sales
1
Atlanta
110,100
95,100
-13.6%
-4.0%
2
Baltimore
236,200
214,200
-9.3%
17.0%
3
Boston
315,800
303,200
-4.0%
-10.9%
4
Cincinnati
120,100
113,000
-5.9%
5.5%
5
Dallas-Fort Worth
139,700
146,800
5.1%
-14.5%
6
Houston
147,500
153,500
4.1%
-0.1%
7
Indianapolis
112,300
109,300
-2.7%
-12.0%
8
Kansas City
122,000
119,400
-2.1%
-9.8%
9
Miami-Ft. Lauderdale
190,900
155,400
-18.6%
46.4%
10
Minneapolis-St. Paul
159,000
142,500
-10.4%
-1.7%
11
New Orleans
n/a
n/a
n/a
n/a
12
New York-Northern New Jersey-Long Island
380,000
376,700
-0.9%
0.0%
13
Philadelphia
201,600
194,600
-3.5%
-4.1%
14
Phoenix
139,400
126,900
-9.0%
8.4%
15
Portland
234,200
214,800
-8.3%
-0.1%
16
San Antonio
n/a
n/a
n/a
n/a
17
San Diego
349,500
367,800
5.2%
-3.3%
18
St. Louis
102,700
111,100
8.2%
-8.6%
19
Washington, DC
290,600
287,500
-1.1%
5.8%
20
U.S.
163,900
157,000
-4.2%
-3.1%
Click to enlarge

**NOTE: There may be differences between this data and locally reported data because of differences in geographic coverage area and housing types.

©2011 NATIONAL ASSOCIATION OF REALTORS®
Click to enlarge

With respect to valuations, low overall demand for housing and increased supply certainly contribute to price declines but the recent surge in the magnitude of price declines is likely related to banks relieving themselves of properties at distressed prices (i.e. “distressed sales”).

Interestingly, we have also observed a growing correlation between the jobs market and the housing market. To this end, Capital Economics reported in their May 11, 2011 “US Housing Market Monthly” report that, “Some regional housing markets appear to be benefitting from an improvement in labour market conditions. Illinois and Oregon were two of the five States that enjoyed a decent increase in employment in the year to the first quarter. That may explain why prices in Chicago and Portland are rising.”

Perhaps more daunting than the existing home sales statistics are pending home sales. Pending home sales represent pending sales of existing homes where a contract has been signed but the transaction has officially not been closed yet. We often view this statistic as a leading indicator for the retail housing market. Unfortunately, based upon existing data again supplied by the National Association of Realtors®, these forward looking indicators do not look promising. According to the National Association of Realtors®, as of February 2011, pending home sales in the U.S., on average, were down 8.2% (seasonally adjusted) and 9.3% (non-seasonally adjusted) respectively on a year-over-year basis.

As a result, while a “double-dip” in residential real estate still seems unlikely, more bumps may lie ahead in 2011 for the fledgling recovery in the housing market. These bumps could have a psychological and economic impact on U.S. consumers as home equity still accounts for over 16% of household net worth according to Federal Reserve data as of the end of the second quarter of 2010 (down from a high of close to 28% in 1980s).