Housing Freefall Continues Unabated

A few items on the Housing front worth reviewing today -- two data based, the other two are more of a media/anecdotal set of examples.

First, the Case-Shiller Home Price Indices shows negative annual returns in the U.S. National Home Price Index, the 10-City Composite and the 20-City Composite, as well as 13 of the 20 metro area indices.

click to enlarge

As the chart above shows, the annual returns of the U.S. National Home Price Index were down 0.7% from Q4 2006 and down 1.4% from Q1 2006. This is only the second time in the quarterly national index’s history that the annual growth rate has fallen into negative territory. The first time was in the period between 1990 and 1991, as depicted in the graph above.

Shiller made the following comments:

“The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the U.S. residential real estate market. The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.”

The second data point worth reviewing is the Existing Home Sales (released on Friday). The WSJ reported that "Sales of existing homes slipped in April to their slowest pace since June 2003, and a rising inventory of unsold properties appeared to set the stage for weaker prices."

The sales rate in April was down 10.7% year over year.

Existing inventory jumped yet again -- rising 10.4% to 4.2 million homes. At current selling rates, this is an 8.4 months supply (up from 7.4 months in March).

The number of unsold properties relative to sales hit a 15-year high.

So I think we can say that the bottom-calling/stabilization nonsense we heard from such housing experts as Treasury Secretary Hank Paulson was premature.

Third, we had heard repeatedly since from other "experts" from the NAR, and elsewhere that the Spring selling season was where we would see price firming and sales increases.

That turned out to be an over optimistic -- i.e., wrong -- expectation. An article in this past Sunday New York Times noted how simply horrific the Spring selling season has been:

"It's spring, the traditional time for hope and growth in residential real estate sales. But beyond the borders of New York City, there are indications that a wintry chill besets the market in much of the region.

On Long Island and in Connecticut, brokers report the inventory of unsold homes continues to build, while the number of buyers is reduced by new lending restrictions.

In New Jersey, the market seems to have slowed from March to April — just when things would ordinarily be revving up. The number of sales contracts signed in April declined in 20 of 22 counties monitored by the Otteau Valuation Group, which does market analysis for brokers. Even in Hudson County, which encompasses such sought-after riverfront towns as Hoboken and Jersey City, sales volume declined 21 percent."

Pretty amazing. Despite all fo the obvious data, the bottom calling conmtinues unabated. I wonder if Tres. Secy Paulson got an early look at the New Home Sales data, was unaware of how volatile and flawed it actually is, and made his "call" expecting to look smart. (See this, this and this).

If you want to know what the builders themselves have to say, go to this article from Bloomberg today:

"New home construction in the U.S. may
take until 2011 to return to last year's level, said David
Seiders, chief economist for the National Association of Home
Builders in Washington.

Monthly construction starts would need to jump by 21 percent
to reach Seiders's benchmark for full recovery, which is 1.85
million. There were 1.53 million in April, the Commerce Department
said. At the height of the five-year housing boom in January 2006,
construction began on 2.29 million homes.

"We've fallen way below trend because we soared way above
trend during boom times,'' Seiders said in an interview. "The
upswing will be relatively slow, unlike earlier cycles.''

The inventory of unsold homes is the largest since the
Washington-based National Association of Realtors started counting
them in 1999 and house prices have suffered the steepest drop
since the Great Depression, according to the realtors' group.
Defaults and foreclosures also may rise as about $650 billion of
loans to subprime borrowers, those with poor or limited credit
histories, reset at higher interest rates by 2009."         

The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.

Sources:
Spring Brings No Signs of Warming in Home Prices
May 29, 2007 09:00 AM EST PDF
http://www2.standardandpoors.com/spf/pdf/index/052907_homeprice.pdf

Home Prices Could Soften as Sales Decline
SUDEEP REDDY
WSJ, May 26, 2007; Page A3
http://online.wsj.com/article/SB118010161739814689.html

It’s Spring. Somebody Tell the Buyers.
ANTOINETTE MARTIN
NYT, May 27, 2007
http://www.nytimes.com/2007/05/27/realestate/27njzo.html

Home Construction Bust May Last Until 2011, U.S. Builders Say
Bob Ivry and Brian Louis
Bloomberg, May 29, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKQoeHb1MraI&

Comments

[lee smith:]

SO WHAT!! This is called reversion to the mean. What is the big deal? Who cares if houses which were price inflated by 30-50% drop in price. Serves the idiots who bought them right.

2007 May 29 07:12 PM

[Jordan Fogal:]

Sub-pimes are NOT the only reason for the foreclosure rates and the crisis in US housing economy. There are two other reasons that NO ONE mentions. THey are builder defects, which are not covered by homeowners insurance, and arbitration clauses which are the get out of responsibility free for bad builders.

What we have seen in Texas is an atrocity. We had over 153,000 in foreclosure last year and another 39,000 in the first quater of this year.
Idiots and stupid people are not the only ones being harmed here. If the numbers would tell the other two reasons people would have a much better understanding of what is really going on. One out of every 177 Texas will lose thier homes this year are they all stupid?

We made over 12,000 complaints to the Attorney Generals office last year and not one was investigated. They said they had neither the time nor money to look into builders or builder fraud.


We have a listing in Houston of the forecloure percentages in each subdivision. Some I am very familiar with because my builder Tremont Homes and Stature construction company was involved in the debacle. When you have over 20% of the homes in prime locations in foreclosure in Houston we know why. They are unhinhabitable or they are so poorly built the new homes would cost a fortune to repair. These of course are new homes where the builders have the protection of arbitration clauses. This clause prohibits a homeowner from suing the builder even in cases of fraud, which is rampid here. Our new home has been vacant for 3 years and over 25% of the houses in our subdivision went into foreclosure. They are a disaster. Ceilings falling in, hardwoods buckling,, windows leaking, shower walls falling out, plumming not connected...those were just a few of the defects in our house. Now it is full of mold and water. Our builder got off by having numerous company names and taking us to arbitration which is not: the cheaper, faster, or farier way to do things. Go to Hobb.org or HADD.com or just goole my name for pictures of froeclosures. No one should be forced to either sign away their rights or not be allowed to own a home yet we are in Texas. You sign or you can not buy. The builders want you to buy and shut up and they will file on you in arbitration, if you don't because they know most either can not afford the $30,000 it cost us, or you will not show up and get ruled agasinst or you will quietly live in deplorable conditions or go into forecosure. If you want the truth . Google my name Jordan Fogal

2007 May 29 07:38 PM

[LeeCarlson:]

The answer is simple really,...Just don't buy a NEW HOME on their terms ! , Or buy one only after having a good home inspection by an experienced Home Inspector ! As a buyer, you are in the drivers seat. Builders are looking to turn properties fast and if they are going to sell, make sure it is built well, up front ! Builders don't control the market,.. buyers do !!
As a Realtor for the past 26 years, I would never let anyone buy a home without a home inspection !
Builders have been making huge profits for years and can afford to build them well !
If they won't sell under your terms, then walk away !!! Also, It's wise to be represented by a Realtor when buying a home,..New Home or a resale, as it is the Realtors responsibility to look out for your interests ! It doesn't cost a penny more to buy thru a Realtor than it does thru a builder. And you
have the protection of having someone, experienced, looking out for your interests !
Next time, for your own good,...USE A REALTOR !!!
Lee Carlson, Clearwater, FL

2007 May 30 10:27 AM

[Jordan Fogal:]

Hundreds oif times I have had to answer the above comments in the past three years. It always seems so simple... to people who have no clue what it is like to deal with unetheical, crooks.

First I had a licenced Realator with Keller Williams.
Second I would never buy a house without an inspection.


There was no way any inspection other than destructive testing or mosture and mold testing could have shown what our builder had covered up. It looked and smelled brand new. Now, since I had those things done should I sue the realtor and the inspector? They had had fraud committed against them too. Every licenced realator that reads anything I write jumps on this. How would suing my realator hep me get the 150,000 to fix my house. My realator was a nice and thouogh person. It was in no way her fault. The inspector told me up fron he did not get on 45ft roofs but I had a 50 warrenty on the roof. I had a Homebuyers warrenty and all state homeowners and so why should I worry right. Wrong, the obvious is not obivous. Crooks that commit fraud are good at it. Especially when they have done it so many times. Now I guess you will say I should have checked them out with the better business bureau... I did. They had a sterling reputation because the BBB had not caught on to the shadow companies and shell game they were playing with them.
Finally they did and thew them out. THere is only one peron at fault and that was the builder.

Further: more you can not buy a car, a home or have a credit card or even a sell phone if you do not sign away your rught to sue. Please google my name I am glad you question. Now you can learn. You could be a big help to other people.

2007 Jun 03 10:23 PM

[wingfootedg...:]

Anecdotal story - it's not just tract homes that are coming down in price. We pulled the trigger on farm property outside of Boise after a having an offer accepted at 75% of the original asking price. And it's a more than fair bet we bought too early.

2007 May 30 10:55 AM

[Jordan Fogal:]

Honey, Get The Kids in the car; Look at These Housing Give-a-ways!

Actual Adds from last Sunday's Houston Chronicle

We've been waiting for a new house for so long, saving and ...just look at today's paper. They want us to have a new home so badly ...just look at all these advertisements! Look at the pictures of all these gorgeous, affordable homes; just look they are practically giving them away!

LOOK VERY CLOSELY at today's paper: Houston does not feel the pinch of the 90% foreclosure rate form last may, and the years of easy money. Believe that? If you do, I have an uninhabitable home built by Tremont / Stature you can get cheap, or numerous previously uninhabited 3-year-old town homes at Tremont Towers. They are not for the faint of heart, or those who enjoy good heath. They have other homes for you quietly leaking throughout the city. They have chosen to cease to advertise - so would I. Wonder why?

Builders are making a last ditch run, at whomever they can round up to dump their inventory on ... except, of course, Bob Perry with his 40 years of exploitation. He is advertising that he can throw you up a lovely new home in four months or even less. He is also offering a "limited" selection of new homes in Spring, TX, amid the bounteous foreclosures.

"Leaky Weekly" is also after his last victims, offering his "employee special pricing." Have they got a deal for you... badda badda bing

We have Fantasy Rylands ... get an outdoor kitchen free! They are giving away a vacation and guess what else... Fantasy Financing. As if we haven't had enough of that already.

Let's see, we also have Ashton Woods - $25,000 in free upgrades! You can have all new appliances! Wow, get the car started honey! There are only 10,500 new homes out there, and they are serving refreshments!

Lenar has only 74, and they are priced to go. They have featured pricing, special incentives and of course Financing programs. Oh, hurry honey!


Legend Homes has homes ready for move in, three preferred lenders to get you qualified, baby, free appliances, another $15,000 in closing costs, upgrades; or we can use their money for price discounts.

Father's Day Special, oh sweetheart, we can wrap it up for you for Father's Day with Royce Builders; and you can save $30,000 dollars. We will save $30,000 - it is just like free money, baby!

Village Builders say, time is running out... so they will save us thousands. Time is running out to own the home of our dreams. Have you got the checkbook? There are buyer incentives on all new homes and prizes are highlighted. Let's see now, we have only 10,500 to chose from; and see how many foreclosures. You know, we could get a deal there ... from idiots who overspent or got a sub-prime… but new houses just smell so, so new, don't they? No one else ever even lived in them - our own little corner of the world, the American Dream.

Listen up Houston shoppers, we have a special on aisle three. Do you hear me screaming at you? Foreclosures are not all sub-primes. Some are substandard houses with astronomical defects that had arbitration clauses, and we know that we were covered up in misleading statistics. If you buy a house from foreclosure, the seller does not have to disclose defects... neither does the builder of those houses you are going to go see. Run on out there, and grab yourself a deal; but before you sign away your life savings, financial, emotional, and physical health, would you please ask you builder just two questions?

If his houses are just so swell, how come he has an arbitration clause to insure himself from lawsuits? If he is so proud of the quality of his workmanship, he wouldn't need that little insurance... now would he? I am just as positive as I can be that if you ask him to remove this little clause, he will just be so accommodating ... as he ushers you off his property.

Your second question for your chance-of-a-lifetime, friendly builder: Does your homebuyer's warranty warrant habitability? HBW, those super duper 2/10 policies are being investigated in12 states; but of course, not in your home state.

There are lots and lots of advertisements by the builders in the Houston Chronicle. Strange, how they overlooked the Judiciary Hearing on arbitration clauses - Tuesday, June 12, 2007...where a Houstonian received an invitation to testify before a subcommittee of the United States Congress, on the effects of binding arbitration on the consumer. Read that testimony at Written Testimony Submitted by Jordan Fogal (judiciary.house.gov/Ov...), then see if you want to run like frantic lemmings after these conniving deals to ruin you and your family's lives.

Don't think you can't be the next arbitration, foreclosure, bankruptcy victim... Neither did the rest of us. There are predicted to be well over 2.4 million more foreclosures this year. Want to gamble with your families security... go get your free hot dog.

Jordan Fogal

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2007 Jun 24 03:06 AM