Beginning of Stabilization in Housing? 17 comments
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From the straws-in-wind department: in Minneapolis-St. Paul last month, the inventory of homes listed for sale fell to its lowest level since 2004, while pending home sales in the market were just 7.6% below they were a year ago, less than the double-digit declines seen in recent months. Out in Southern California, meanwhile, the Orange County Register's Jon Lanser notes that the O.C. residential real estate market is going through a bifurcation. Asking prices for homes in the top quartile by pricing have risen for five straight months, while asking prices homes in the bottom quartile keep on falling. Like so:
Orange County Residential Real Estate Listings
Top- and Bottom -Quartile Median Asking Prices
Source: Orange County Register
This is consistent with the fact, illustrated by maps like this of a neighborhood in Denver , that foreclosures tend to be bunched together in specific newly developed or fringe areas. It's also consistent with another fact, noted here last week , that in Orange County, at least, foreclosures and short sales now dominate home listings at the low end of the market. Possible moral of story: the broad-based, nationwide decline in home prices of the past 18 months may be on the verge ending, and morphing into one that's still occurring in multiple markets, but only within certain lower-priced neighborhoods. As always, accuracy of predictions not guaranteed.
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It would be more informative to show what sales have been in those bifurcated markets. I'm guessing that sales in the lower quartiles have been brisk recently because banks are more willing to unload REO properties than they were 6 months ago. Another thing that might be pushing up asking prices in the upper quartile is homes that went to foreclosure and have now dropped out of that quartile because their asking prices fell. The effect is the same, but the mechanism speaks to weakness, not strength.
In short, I don't think there's enough data here to make any value judgments. And I still think that the bottom of the RE market is a long way off.
When median home prices fall to an inflation adjusted pre-bubble level, AND inventory becomes more normalized, AND prices drop so that median income families can afford to purchase, AND foreclosures cease to dominate the resale market, THEN you might conclude that the bottom has been reached.
Until all those situations occur, keep silent.
I agree with you. And also want to add that the rules of qualifying for a mortgage have gone back to normal and a lot of lenders are being much more strict with their mortgages. This lowers the amount of people that can qualify for a mortgage, and further adds to the lack of demand.
There is no national market, and the REO's skew numbers. Take the normal trend line from the early 2000's and we're just about back in that range.
No, I am not a real estate agent either, but I do own a few homes.
That's because the wealthy in O.C. can afford to buy homes, while the poor and middle class cannot. I doubt that the real estate market can maintain itself of only sales of high priced homes. I suspect that the Baltic Ave. and Mediterranean Ave. homes are the bread and butter of the real estate business and our economy as a whole. I might add that as Target and Sears get pummeled, Tiffany is doing OK.... Similar?
Thx jegan ;-)
A drop in mortgage payments could happen in a number of ways: (a) lower home prices (likely) or (b) lower interest rates (unlikely). Stricter lending guidelines have probably had the most dramatic effect thus far on home prices. Simply cutting out all the fake demand created by exotic mortgages (negative equity, interest-only, Alt-A, etc.) has been bringing home prices back to 2004 levels since people can afford much less home with traditional mortgages.
The next step and bigger unknown will be the impact of excess supply. All these homes on the market (new construction incentives, speculators walking away from their homes, foreclosures) will continue to pressure home prices. How much prices drop depends on the urgency to sell.
Ironically, as home owners leave the market and become renters, there is a stabilizing effect on home prices. More rental demand drive up rental prices, which cuts the premium on ownership vs. remaining a renter.
The biggest variable on the horizon, in my opinion, is how much inflation we will experience in the upcoming years. How would high inflation affect our low interest rate mortgages? You can bet that there would be plenty more downside in home prices at that point.
So where are we now? Fortune says we are on the order of 20% over-valued in the formerly hottest real estate markets. NY Times says that home prices would have to go up 5% a year for 5 years to make buying a home a clear-cut decision. Over-valued? Yes. Grossly over-valued? Not really.
And to those thinking there is something catastrophic going on in our economy that will hit home prices further, I would add that most of the macro-economic numbers are still fairly strong. GDP Growth is anemic but ok. Unemployment is STILL historically low which is the key to consumer spending (2/3 of GDP). Most likely, we will just kind of bounce around this level surrounded by lots of fear and uncertainty for a few years. Then we’ll just get used to it.
There is a strange difference between the main stream news in the UK and USA:
Where in the UK right from the start of this decline in home values folks talked about the relationship between median income and median house price, in the USA you can only find talk like that on more specialized blogs.
May there is a easy to understand explanation for this:
When you compare US median income and house prices over the period 1996 to 2006 (when the bubble started to burst) you arrive at a stunning bubble size of 50%!!!
In home equity this is about 11.5 trillion US$.
Ok ok, in some places in the USA prices did not rise that much and in other places it was even far beyond a 50% bubble size.
But all in all the law of gravity will apply and the historical relation between income and house prices will be there again.
bubbletracking.blogspo.../
mrmortgage.ml-implode..../
Glad to hear that the Phoenix market is starting to move, at least at the ends.
My question to you is this: How much inventory is there in relation to sales? In Northern NV (admittedly a puny market compared to yours) inventory ranges from an 11-month supply at the low end to a 5+ year supply for homes listed for over $1 million.
Most realtors I know say a 'balanced' market is 6 months of inventory. How long will it take to bring the market back into balance? Well, as long as more foreclosures are added to the pool than sales subtract from it, it seems that supply will continue to outstrip demand, resulting in even lower prices.
But again, I'm glad to see a glimmer of light around the storm clouds.
Bill
I wish you were right, as I own hundreds of paper lots in SoCal, but you are not. In any price crash, the land always takes the hit, because construction costs are a "relative" constant. Labor might go down (supply and demand) while material might go up....but as a per square foot price for a home drops, the only place that can take the hit is the land.