Housing Market Tracker - It's About Affordability, Stupid. 9 comments
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Can the market find equilibrium before homes become affordable again?
Manhattan Home Sales Slow, Prices Rise. “Broker Prudential Douglas Elliman: Sales of Manhattan condos and cooperatives dropped more than 34% in Q1’08 compared with Q1’07, said, but the median sales price gained over 13% to $945,276… Much of Manhattan's price boost came from high-end sales… The median price of a luxury apartment soared almost 46% to nearly $5 million… The number of properties on the market… gained nearly 5% since Q1’07… Brown Harris Stevens report: Sales volume in Manhattan… dipped 1% in Q1’08 from Q1’07. But showed a jump in median price due to a fourfold increase in the number of sales over $10M.”
How Far Will House Prices Fall? Implications From the Latest WSJ Survey. “If (1) the mean forecast for the OFHEO HPI is realized, and (2) the historical correlation between the OFHEO and Case-Shiller indices continue to hold, then a 40% decline in 10-city prices is implied. One corollary of this result is that only a slightly more pessimistic than average forecast implies a 50% decline in house prices as measured by Case-Shiller, relative to peak (the "Lo" estimate implies a 84% log decline).”
Oahu Median Home Price Tops $600K Again. “Honolulu Board of Realtors: The median price of a single-family Oahu home in March was $628,000, down 2.4% from March 2007, when the price was $643,500, but up 4.8% from February, when the price was $599,000… Oahu single-family home [sales] fell 14.5% last month to 282 homes sold, compared to 330 homes sold in March 2007. The median condominium price was $329,300, which was 2.6% higher than March 2007, when the price was $321,000, but down from the record high last month of $335,000. Sales of condos dropped 27.5% to 392 units, down from 541 units sold in March 2007.”
Bill Gross: If Housing Prices Decline Further, So Does the Economy. “PIMCO Managing Director Bill Gross: “Since homes are the most highly levered and monetarily significant asset that American consumers own, if they decline much further they will drag the rest of the economy with them… Home price declines of 20% are in fact much more of a shock to the American economy than the popping of the Internet bubble and NASDAQ 5000, because the amount of homeowner leverage is so much greater. A 20% negative adjustment… wipes out all ownership equity for millions of Americans… The decline needs to be stopped quickly in order to avert additional crises.”
Median Price Check: Homes You Can Buy for $195,900. “In February, the [national] median home price fell 8.2%, dropping from $213,500 in February 2007 to $195,900… Craigslist: In the Austin area, a local market that’s relatively unscarred by the housing bust, $194,900 can purchase a 2,436-square-foot home ... In Phoenix, [where] the median home price fell 18.2% in January from January 2007, according to S&P/Case/Shiller Index… in a nearby suburb there’s a $195,900, 2,817-sf house… In Howell, a suburb of Detroit – which is swamped with foreclosures and where home prices plummeted 15.1% in January from January 2007 (Case/Shiller index) $195,900 can buy a three-bedroom house.”
At A Glance: Home Prices Plunge. Massachusetts: “The median price of single-family homes in the Bay State suffered its largest monthly plunge since December 1990, The Warren Group announced last week. Condominium sales saw their largest monthly declines since May 1993. Statewide, median home prices fell 8.8% in February — from $330,000 a year ago to $301,000 last month. Essex County median home prices fell 10.25% from February 2007-February 2008.”
Housing Slump Comes to the Hamptons. “Financial Times: Suffolk Research: The three-month running median sales price of single-family homes in East Hampton and Southhampton towns fell 19.2% to $638,600 between December-February. That is almost as much as the 19.3% drop in home prices that Miami and Las Vegas… suffered [entirely] last year (S&P Case-Shiller house price indices.)” Sales of vacation property fell 31% across the US, against a 10% drop in sales of homes bought to live in. The Hamptons are now facing a high end rental market with decreasing demand, amid a glut of properties to let… Agents said the rental market is off 10%.”
Manhattan Home Market Slows as Wall Street Cuts Jobs. “Real Estate Appraiser Miller Samuel: Manhattan apartment sales fell in January and February from a year earlier and new properties came to the market at the fastest pace since at least 2000… Transactions slid 6.4% to 3,250, while the number of condominiums, co- operatives and townhouses for sale at the end of last month climbed to 6,225, 15% more than at the start of the year… Condo and co-op prices rose throughout last year, gaining 6.4% in Q4’07 compared with Q4’06… Buyers in the top 10%, those anteing up at least $2.8 million, paid 28% more in Q4’07 than Q4’06.”
Let The Housing Chips Fall. “U.S. home prices are like a beach house supported by eight pillars: lax lending standards, low down payments, "teaser" interest rates, widespread real estate speculation, pliant appraisers, willing lenders, easy refinancing and a market for mortgage-backed securities… We've knocked out all of [these pillars]… At current levels, the average American still can't afford the average house. Despite the creativity of its new policies, Washington can't alter that math. The only mechanism to restore balance… is for prices to fall steeply to a true market level, and for losses (for consumers and corporations) to be recognized and absorbed.”
CC Will Unveil "State Of The Rockies" Report Next Week. “About a third of houses in the Colorado Springs area are too expensive for a family with the median-level income. That makes houses here much more affordable than some other cities in the West. In the Las Vegas area, 80% of houses are too expensive for a median-income family. In the Phoenix area, 70% of houses are out of reach. In Colorado Springs, the spread between house prices and paychecks got bigger from 2004 to last year. Median incomes climbed about 5% while median house prices went up nearly 20%.”
Thousands Of SLO County Homeowners Could See Property Tax Drop. California: “A tax assessor review of thousands of San Luis Obispo County residential properties could lead to a drop in property taxes. County assessor Tom Bordonaro says his office plans to examine 14,443 residential properties sold since the beginning of 2005 to see if assessments should be lowered because of plunging real estate values. The review represents 16% of the 89,000 single-family properties in San Luis Obispo County. Bordonaro says "we are guesstimating that 8,000 will have lowered assessments.”
Houston Gets High Marks On Housing Affordability Study. “Bizjournals study: Houston has the eighth-most affordable housing out of the Top 50 major metropolitan areas in the U.S. and is second in Texas behind San Antonio. Bizjournals ranked the cities based on the percentage of monthly income that was spent on total housing costs, including property tax. Houstonians spend approximately 22% of their monthly income on housing… The median household income in Houston was $4,188/month, while the median total housing payment totaled just over $900. Oklahoma City has the most affordable housing, with 19% of monthly income being spent on housing. San Antonio; Birmingham Ala.; Indianapolis Ind.; and Pittsburgh rounded out the Top 5.”
Upside to Falling Prices: Housing Affordabilty Index Reaches 4-Year High. The National Association of Realtors' Housing Affordability Index [HAI] from 2005-Feburary 2008… has gone from a 103.6 in July 2007 [reading] to 135.6 in February 2008. A composite HAI of 135.6 means that a family earning the median family income ($59,967) in February had 135.6% of the income necessary to qualify for a conventional loan (at 5.94%) covering 80% of a median-priced existing single-family home in February ($193,900). This increase of more than 31.6 points in the HAI in just seven months, from both falling home prices and falling mortgage rates, is already… having an effect (February sales increased)... Housing affordability is higher today than at any time since early 2004.”
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This article has 9 comments:
Housing is all about affordability. I think the point that many are missing right now is that housing will underperform inflation for the foreseeable future (it must). Creating inflation just to dress-up losses in housing seems crazy to me, because you aren't going to get 100% of that inflation reflected in house prices.
I will offer, from an admittedly basic understanding of economics and a good deal personal observation, that it is creative lending programs and government programs that are artificially increasing prices. The sub-prime mortgage mess is a prime example of this - creative lending and lax regulations allowed more buyers into a relatively limited, but highly demanded, market. Prices go up, financing becomes more creative, prices go up again... rinse and repeat.
But even before the current sub-prime debacle, I've always found special financing programs, FHA assistance and other government assistance for lower- (and yes, even mid-to-higher) income housing baffling. Years ago when I and my partner was looking for a house, we were priced out of bidding for one home by another couple who had less income but was getting a down payment subsidy. Well, if someone with a higher income was priced out, but another with a lower income got in, doesn't that indicate that perhaps there is something wrong?
A very clear indication that the programs are not just putting people in homes, but putting the very same homeowners in properties that realistically they can't afford, but are given the illusion they can.
Unfortunately, we're in a catch-22. If the mortgages went back to the standard 10/20% down for a fixed 15/30 year term and reasonable credit scores, then that would reduce the pool of buyers, reduce the demand for houses and drive down prices - sticking those who purchased recently (both those who could and those who could not) with an asset with a declining value, yet keeping this altruistic 'everyone has a right to own a home' without demanding that the buyer can afford the home, only props up prices and perpetuates this cycle.
mjperry.blogspot.com/2...
Lawler Economic & Housing Consulting
Housing price support? Just to support housing prices in California will require over $500B.
Fed's Benny can do it but gas prices might go well over $10-20/gallon. Ben likes to iflate the US economy out of the present crisis. But, energy providers might stop accepting US$ as payments for oil and gas. There is more than enough fiat-paper money floating around. Remember that such major energy suppliers as Russia, Iran, Venezuela are not exactly friendly with the USA.
This is exactly what happened in 1931 when Fed had to start raising interest rates.