Interest Rate Roundup

Wednesday, March 24, 2010

New home sales fall to record low in February

How did the new home market perform in February? Glad you asked. Here are details from the Census Bureau ...

* New home sales dipped 2.2% to a seasonally adjusted annual rate of 308,000 in February from an upwardly revised 315,000 in January. That was slightly below forecasts for a sales rate of 315,000 and the lowest level in 47 years of record-keeping.

* Regionally, sales dropped 20% in the Northeast and 18% in the Midwest. They fell 4.6% in the South, but jumped 20.8% in the West.

* The raw number of homes for sale inched up to 236,000 from 233,000 in January. Compared with a year earlier, supply was down 28%. The months supply at current sales pace indicator of inventory climbed to 9.2 from 8.9. Median prices rose 6.1% to $220,500 from $207,900 a month earlier. On a year-over-year basis, prices were up 5.2%, the biggest yearly gain since September 2007.

What's the story on housing? The market remains stuck in the doldrums, that's what. New home sales slumped to the lowest level since at least 1963, while a key measure of market supply worsened. If there's a silver lining, it's that median prices increased at the fastest year-over-year rate since late 2007. We'll likely see some pick up in the March and April figures as well, with buyers looking to get in before the tax credit expires. The credit-fueled pop won't be anything like what we saw the first time around however.

Stepping back for a minute to look at the big picture, I can't help but point out (again) how affordable housing is. Cheap rates and cheap home prices have restored the affordability that was sorely lacking a few years ago. Core buyers and investors are out there, and they're buying product that's priced right. This is why I don't expect a huge new collapse in the housing market, just more churning near these depressed levels.

Tuesday, March 23, 2010

Existing home sales dip in February

We just got our latest update on the performance of the existing home market. According to the National Association of Realtors ...

* Existing home sales slipped 0.6% to a seasonally adjusted annual rate of 5.02 million in February from 5.05 million in January. That was roughly in line with forecasts for a sales rate of 5 million.

* Regionally, sales were mixed. They fell 4.7% in the West and dipped 1.1% in the South. Sales rose 2.8% in the Midwest and climbed 2.4% in the Northeast. By property type, single family sales fell 1.4%, while condo and coop sales rose 4.8%.

* The raw number of homes for sale rose 9.5% to 3.589 million from 3.277 million in January. Compared with a year earlier, supply has dropped 5.5%. The months supply at current sales pace indicator of inventory rose to 8.6 from 7.8; that's the highest since August. Median prices were virtually unchanged at $165,100 in February versus $164,900 in January. On a year-over-year basis, prices were down 1.8%.

It seems we've found a "home base" level in housing. Cheap mortgage rates are somewhat offsetting the pressure of tighter lending standards. Foreclosures continue to be parceled out into the market. But aggressive loan modifications efforts are keeping them from flooding the market all at once -- and bargain hunters are buying when those units are priced right. Existing home inventory remains high. But the collapse in new home construction has left that part of the market with the smallest crop of for-sale inventory since President Nixon was in office.

This uneasy standoff -- with positive and negative forces roughly offsetting each other -- should persist for the remainder of the year. Depending on the economy's performance, 2011 could be yet another snoozer. That's better than the freefall from 2005-2009, but nothing like the vigorous recoveries we've seen after previous housing market downturns.

Tuesday, March 16, 2010

Housing starts, permits flat lining

Housing starts and permits data for February just hit the tape. Here's a recap of the numbers:

* Housing starts fell 5.9% to a seasonally adjusted annual rate of 575,000 in February, which sounds worse than the -3.6% forecast. But the January starts figure was revised up to 611,000 from 591,000 and the raw number that economists were looking for was 570,000. Long story short, starts were mostly in line with expectations. Building permit activity fell 1.6% to 612,000, which was slightly better than the 601,000 forecast.

* By property type, single family starts dipped 0.6%, while multifamily starts tanked 30.3%. Permitting activity slipped 0.2% in the single-family market and fell 7.6% in the multifamily category. If you step back and look at the longer-term trend, it's fair to say we've basically flat-lined for the past year.

* Regionally, starts were a mixed bag. They dropped 15.5% in the South and fell 9.6% in the Northeast, but rose 7.9% in the West and gained 10.6% in the Midwest. Building permits slipped 2.1% in the West and fell 5.8% in the South. They flat lined in the Northeast and rose 11.7% in the Midwest.

Someone should get out the paddles -- because the housing market is flat lining! Tight credit conditions, anemic demand, and inventory pressure from the "used" home market are all keeping builders on the gurney. And frankly, that's what I've been expecting.

While the inventory of new homes on the market has plunged to the lowest level since the early 1970s, distressed inventory continues to be parceled out into the market. That means buyers have plenty of cheap existing homes to choose from. That, in turn, means builders have little incentive to ramp up production. We won't see a more notable upturn in starts -- or if you prefer, the patient walking on his own -- until 2011. But at least the three-year crash that began in 2006 is over.

Monday, March 15, 2010

NAHB index falls in March

The National Association of Home Builders just released its latest report on the housing industry. The overall index fell to 15 in March from 17 in February. Among the subindices, the index tracking present sales declined to 15 from 17, while the index measuring perceptions about future sales dropped to 24 from 27. Those figures are roughly in the same range as they've been for months. However, an index measuring present buyer traffic slumped to 10 from 12 -- the lowest reading in a year.

Regionally speaking, the Northeast fared the best. Its index rose to 23 from 18. The West index also inched up to 15 from 14. Meanwhile, the South index fell to 18 from 19 and the Midwest index slid to 10 to 13.

Home buying activity remains muted, especially on the new housing side of the ledger. Builders of new homes are simply having a very difficult time competing against "nearly new" homes being dumped on the market by burned speculators and banks. That dynamic will persist for some time because foreclosed homes will continue to be parceled out into the market over the next couple of years. Still, we're slowly but surely working through the overhang of excess inventory. That will eventually help stabilize home pricing and make life easier on the builders.

Thursday, March 04, 2010

Pending home sales tank almost 8% in January

The pending home sales figures for January just hit the tape. Here's a recap:

* Sales dropped 7.6% between December and January. That compared to the 1% gain that economists were expecting.

* At 90.4, the index was up up 12.4% from the year-ago level of 80.4.

* By region, pendings fell across the board. They slipped 2.1% in the South, fell 8.7% in the Northeast, dropped 8.9% in the Midwest, and tanked 13.2% in the West.

Pending sales were another big disappointment in January. Transactions fell much more sharply than expected, with declines noted in all regions of the country. I'm not sure why this was such a surprise, given the lousy new home sales figures we already had. But it is what it is.

The bigger picture story here? The hangover from the initial home buyer tax credit is proving to be worse than expected. Throw in a lackluster job market and a sputtering economy, and you can see why sales aren't spiking. It doesn't mean we're headed into an even-deeper housing depression. Lower prices and low mortgage rates are combining to make homes more affordable than they've been in a long time -- and some buyers are responding. But it does mean a vigorous recovery will continue to be MIA.

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