Don't let the idea of seasonality in the market hold you back.
Now is a GREAT time to sell!
In Chicago's Gold Coast the fourth quarter boasts the highest median price, the 2nd highest number of units sold, and the 2nd highest price per square foot.
*Average over past 3 years
Showing posts with label market conditions. Show all posts
Showing posts with label market conditions. Show all posts
Wednesday, November 10, 2010
Tuesday, November 2, 2010
Real Estate Revisited, Part 2
ONLY THE SHADOW KNOWS
Not everyone is convinced that statistics tell the whole story, though. A scan of press reports produced more skeptics than adherents of the idea that home prices have reached a bottom. A recent Bloomberg article, for example, found only two votes for near-term stability, while five other experts saw prices falling by as much as 15% over the next few years.
Why the doom and gloom amid encouraging data? One reason is the threat of a "double-dip" recession. "We think a second round is reasonably likely," says Rob Arnott, chairman of Research Affiliates in Newport Beach, Calif. According to Arnott, just the threat of a tax boost could cause affluent consumers to spend less and turn a fragile recovery into a renewed recession. That would be troublesome for housing prices, which could fall another 10%-20%. "We don't see a bottom in housing prices until 2012," he says.
Arnott also mentions the huge "overhang" of houses that are in or near foreclosure as a factor that will increase the supply of homes on the market and thus put a lid on prices. This is the so-called shadow inventory of properties that are not on the market now but soon may be on sale. Some of those properties are held by banks after a foreclosure; others still belong to homeowners in some pre-foreclosure stage.
By some estimates, this shadow inventory is as large as seven million homes, which could go on the market in the next few years. Today, there are about four million existing homes for sale in the United States. If seven million homes are added, more than doubling for-sale listings, the surplus of sellers over buyers could drive down home prices even further, bearish forecasters predict.
WHERE CREDIT WAS DUE
Besides the shadow inventory, bears on housing prices point to another reason for doubting the staying power of recent home price stability-the expiration of housing tax credits. Throughout 2009 and into the second quarter of 2010, certain home buyers qualified for federal income tax savings of up to $8,000. According to NAR, an estimated 4.3 million home buyers were eligible to use the tax credits, including one million who might not have bought without the tax break.
If those million home buyers had kept their checkbooks closed, leaving an extra million homes on the market, prices probably would not have stabilized in 2009-2010. Now that the tax credits have expired, with no apparent renewal in sight, will flagging demand lead to a resumption of home price declines? "We see some footing in housing prices, but we're not far enough from the housing tax credits to see how solid the bottom is," Luschini says.
Perhaps the lack of tax credits won't cause a double-dip in home prices. "Our forecast for 2010 is for home prices to be essentially unchanged nationally from 2009," says Walter Molony, a spokesman for NAR. "Unless home sales remain depressed for more than a few months, we don't expect an impact on prices. Prices have overcorrected in some areas; homes are selling for less than replacement construction costs in many markets."
By: Donald Jay Korn
Check in tomorrow for Part 3!
Missed Part 1? Read it here?
Not everyone is convinced that statistics tell the whole story, though. A scan of press reports produced more skeptics than adherents of the idea that home prices have reached a bottom. A recent Bloomberg article, for example, found only two votes for near-term stability, while five other experts saw prices falling by as much as 15% over the next few years.
Why the doom and gloom amid encouraging data? One reason is the threat of a "double-dip" recession. "We think a second round is reasonably likely," says Rob Arnott, chairman of Research Affiliates in Newport Beach, Calif. According to Arnott, just the threat of a tax boost could cause affluent consumers to spend less and turn a fragile recovery into a renewed recession. That would be troublesome for housing prices, which could fall another 10%-20%. "We don't see a bottom in housing prices until 2012," he says.
Arnott also mentions the huge "overhang" of houses that are in or near foreclosure as a factor that will increase the supply of homes on the market and thus put a lid on prices. This is the so-called shadow inventory of properties that are not on the market now but soon may be on sale. Some of those properties are held by banks after a foreclosure; others still belong to homeowners in some pre-foreclosure stage.
By some estimates, this shadow inventory is as large as seven million homes, which could go on the market in the next few years. Today, there are about four million existing homes for sale in the United States. If seven million homes are added, more than doubling for-sale listings, the surplus of sellers over buyers could drive down home prices even further, bearish forecasters predict.
WHERE CREDIT WAS DUE
Besides the shadow inventory, bears on housing prices point to another reason for doubting the staying power of recent home price stability-the expiration of housing tax credits. Throughout 2009 and into the second quarter of 2010, certain home buyers qualified for federal income tax savings of up to $8,000. According to NAR, an estimated 4.3 million home buyers were eligible to use the tax credits, including one million who might not have bought without the tax break.
If those million home buyers had kept their checkbooks closed, leaving an extra million homes on the market, prices probably would not have stabilized in 2009-2010. Now that the tax credits have expired, with no apparent renewal in sight, will flagging demand lead to a resumption of home price declines? "We see some footing in housing prices, but we're not far enough from the housing tax credits to see how solid the bottom is," Luschini says.
Perhaps the lack of tax credits won't cause a double-dip in home prices. "Our forecast for 2010 is for home prices to be essentially unchanged nationally from 2009," says Walter Molony, a spokesman for NAR. "Unless home sales remain depressed for more than a few months, we don't expect an impact on prices. Prices have overcorrected in some areas; homes are selling for less than replacement construction costs in many markets."
By: Donald Jay Korn
Check in tomorrow for Part 3!
Missed Part 1? Read it here?
Tuesday, August 24, 2010
Chicago Home Sales
So - several of my clients sent me this article and asked for my comments. I thought I would share this with you too! If a few ask, perhaps more would like to know....
Here you go: Averages are meaningless in our specific luxury market - we are not in the slightest changed by the drop in the $8k tax credit as none of our buyers are in that market. As always, the important information to study for your particular sale or purchase is- building by building and then tier by tier within that building. Nothing else is relevant.
As an example, most units at Trump and Heritage are up 20% over 6 months ago if they are in the prime tiers. In the not prime tiers, it is another story. In some of our other buildings, sales prices are lower by as much as 20%, but there are usually additional reasons - assessments got too high, a special need or special assessment got bad word of mouth going, too many desperate sellers...reasons. But proper marketing and patience gets the job done.
Building by building, tier by tier.
Our Fox Group sales numbers this year are excellent. Out of 5,000 Keller Williams Groups nation-wide, we performed #3. Why? Luxury market, direct marketing techniques, not relying on the old way of doing business. Half of our sales are "on us", meaning we find the buyers through direct means. A lot of luxury buyers are interested in buying "up", enjoying a finer home in a somewhat uncertain economy. While our year would be LOTS better if interested buyers could sell their own homes (Domino Effect), we have some who either have successfully sold or who are buying without selling first.
Person by person, building by building, tier by tier.
We are bullish on our market segment and our numbers show it! Do sellers need patience? Yes. Are lowest price units selling first? Yes again. In my 20 years in real estate, I have never seen a better chance to buy. And if that means savvy, informed sellers may take a little less, then that dictates that they should do that - and buy into the best market they are likely to see in their lifetimes. Sell for less, buy for less still. And buy well so you can appreciate value increase over time.
Basics. Location, location, location? NO! Value, Value, Value.
Here you go: Averages are meaningless in our specific luxury market - we are not in the slightest changed by the drop in the $8k tax credit as none of our buyers are in that market. As always, the important information to study for your particular sale or purchase is- building by building and then tier by tier within that building. Nothing else is relevant.
As an example, most units at Trump and Heritage are up 20% over 6 months ago if they are in the prime tiers. In the not prime tiers, it is another story. In some of our other buildings, sales prices are lower by as much as 20%, but there are usually additional reasons - assessments got too high, a special need or special assessment got bad word of mouth going, too many desperate sellers...reasons. But proper marketing and patience gets the job done.
Building by building, tier by tier.
Our Fox Group sales numbers this year are excellent. Out of 5,000 Keller Williams Groups nation-wide, we performed #3. Why? Luxury market, direct marketing techniques, not relying on the old way of doing business. Half of our sales are "on us", meaning we find the buyers through direct means. A lot of luxury buyers are interested in buying "up", enjoying a finer home in a somewhat uncertain economy. While our year would be LOTS better if interested buyers could sell their own homes (Domino Effect), we have some who either have successfully sold or who are buying without selling first.
Person by person, building by building, tier by tier.
We are bullish on our market segment and our numbers show it! Do sellers need patience? Yes. Are lowest price units selling first? Yes again. In my 20 years in real estate, I have never seen a better chance to buy. And if that means savvy, informed sellers may take a little less, then that dictates that they should do that - and buy into the best market they are likely to see in their lifetimes. Sell for less, buy for less still. And buy well so you can appreciate value increase over time.
Basics. Location, location, location? NO! Value, Value, Value.
Wednesday, July 28, 2010
Home Affordability is the best it has been in decades!
Daniel Kelley is the lead real estate analyst and portfolio manager of the Fidelity Select Construction and Housing Portfolio.
"Having just gone through a potentially once-in-a-lifetime down market, there is a bright light. Home affordability is the best in decades. In fact, on average, today's homebuyers have the lowest mortgage payments as a percentage of income in 30 years," wrote Kelley in a recent research report.
"Having just gone through a potentially once-in-a-lifetime down market, there is a bright light. Home affordability is the best in decades. In fact, on average, today's homebuyers have the lowest mortgage payments as a percentage of income in 30 years," wrote Kelley in a recent research report.
Monday, May 17, 2010
Trader pays over $7.25 million for Elysian condo
By: Andrew Schroedter May 17, 2010
(Crain’s) — An options trader is taking a gamble on the Elysian Hotel & Private Residences, paying more than $7.25 million for a condominium in the Gold Coast skyscraper that he hopes to flip for more than $10 million.
Igor Chernomzav, a co-founder of Hard Eight Futures LLC, bought a 12,000-square-foot unit on the 56th and 57th floors of the 60-story tower at 11 E. Walton St., which also features a 188-room hotel, according to property records.
Mr. Chernomzav, 33, who paid cash for the five-bedroom, two-level condo, plans to remodel the unit and put it back on the market, according to Tricia Fox of residential real estate firm Keller Williams, which brokered the sale.
The asking price will be between $10 million and $11 million, Ms. Fox says.
This is the second unit Mr. Chernomzav has purchased in the Elysian, after paying a reported $8.18 million in March for a 52nd-floor unit, which he is also remodeling. Whether he also plans to flip that condo could not be determined.
A spokesman for Mr. Chernomzav declines to comment.
Mr. Chernomzav started Chicago-based Hard Eight in 2004, five years after earning a philosophy degree from Princeton University, according to his firm’s Web site. Originally from San Antonio, he began his career in 1999 as an options trader for Susquehanna Investment, part of suburban Philadelphia-based Susquehanna International Group LLP.
For his recent purchase in the Elysian, the entrepreneur bought a contract for a unit signed several years ago by a speculator represented by Ms. Fox. The identity of the speculator and how much Mr. Chernomzav paid for the contract could not be determined.
But Mr. Chernomzav is paying developer Elysian Worldwide 25% less than the speculator’s original asking price of $9.5 million for the unit, which features a 25-foot living room ceiling and 360-degree views.
Zaga Arsic, also of Keller Williams, represented Mr. Chernomzav.
The deal is a sign that the high-end market is improving as sellers cut prices, says Craig Hogan, managing broker of Keller’s Gold Coast office.
“If the price is right, people will come look,” he says.
Mr. Chernomzav has paid the highest prices for units in the Elysian, surpassing the $6.88 million that James McNulty, former CEO of the Chicago Mercantile Exchange, paid in January for a 7,400-square-foot condo on the project’s 37th floor, according to property records. Mr. McNulty didn’t return a call seeking comment.
Buyers have closed on 31 of the 51 residential condo units in the building, says developer David Pisor, who in November was forced to abandon a plan to also sell the 188 hotel units in the building.
Another 15 residential condos are under contract, says Mr. Pisor, president and CEO of Chicago-based Elysian Worldwide LLC, who adds that sales traffic has picked up in the last 45 days.
“It was pretty brutal there for a while,” he says.
(Crain’s) — An options trader is taking a gamble on the Elysian Hotel & Private Residences, paying more than $7.25 million for a condominium in the Gold Coast skyscraper that he hopes to flip for more than $10 million.
Igor Chernomzav, a co-founder of Hard Eight Futures LLC, bought a 12,000-square-foot unit on the 56th and 57th floors of the 60-story tower at 11 E. Walton St., which also features a 188-room hotel, according to property records.
Mr. Chernomzav, 33, who paid cash for the five-bedroom, two-level condo, plans to remodel the unit and put it back on the market, according to Tricia Fox of residential real estate firm Keller Williams, which brokered the sale.
The asking price will be between $10 million and $11 million, Ms. Fox says.
This is the second unit Mr. Chernomzav has purchased in the Elysian, after paying a reported $8.18 million in March for a 52nd-floor unit, which he is also remodeling. Whether he also plans to flip that condo could not be determined.
A spokesman for Mr. Chernomzav declines to comment.
Mr. Chernomzav started Chicago-based Hard Eight in 2004, five years after earning a philosophy degree from Princeton University, according to his firm’s Web site. Originally from San Antonio, he began his career in 1999 as an options trader for Susquehanna Investment, part of suburban Philadelphia-based Susquehanna International Group LLP.
For his recent purchase in the Elysian, the entrepreneur bought a contract for a unit signed several years ago by a speculator represented by Ms. Fox. The identity of the speculator and how much Mr. Chernomzav paid for the contract could not be determined.
But Mr. Chernomzav is paying developer Elysian Worldwide 25% less than the speculator’s original asking price of $9.5 million for the unit, which features a 25-foot living room ceiling and 360-degree views.
Zaga Arsic, also of Keller Williams, represented Mr. Chernomzav.
The deal is a sign that the high-end market is improving as sellers cut prices, says Craig Hogan, managing broker of Keller’s Gold Coast office.
“If the price is right, people will come look,” he says.
Mr. Chernomzav has paid the highest prices for units in the Elysian, surpassing the $6.88 million that James McNulty, former CEO of the Chicago Mercantile Exchange, paid in January for a 7,400-square-foot condo on the project’s 37th floor, according to property records. Mr. McNulty didn’t return a call seeking comment.
Buyers have closed on 31 of the 51 residential condo units in the building, says developer David Pisor, who in November was forced to abandon a plan to also sell the 188 hotel units in the building.
Another 15 residential condos are under contract, says Mr. Pisor, president and CEO of Chicago-based Elysian Worldwide LLC, who adds that sales traffic has picked up in the last 45 days.
“It was pretty brutal there for a while,” he says.
Tuesday, January 19, 2010
Real Estate Outlook: Strong Sales Predicted
By Kenneth R. Harney, Realty Times
Will housing outperform the overall economy in 2010 as we pull out of the Great Recession?
Nothing is absolute in the predictions business, but there are solid indications that, yes, housing is likely to rebound more energetically than the overall economy.
Here's why: Even the most bearish Wall Street analysts now concede that home sales are up in many areas from year-earlier levels -- sometimes by extraordinary percentages.
For example, MDA DataQuick reports that sales in the greater Phoenix market in November were 62 percent higher than the year before.
Prices either have bottomed out in dozens of these markets or are close to it. That's because the distressed sales component of local volume - short sales, REOs and foreclosures - has been declining slowly but steadily.
In his latest forecast, Jay Brinkmann, chief economist for the Mortgage Bankers Association, says both existing and new home sales will be higher in 2010 than in 2009 - and 2009 was better than 2008.
No question that a key part of the energy in housing will be the direct result of stimulus efforts by the federal government - especially the two tax credit programs -- that will push sales and even pricing through mid year.
The overall economy, on the other hand, according to Brinkmann, is likely only to grow slowly in the first half of 2010, and not really warm up until the second half.
The heavy anchor dragging on national economic growth -- and on housing demand -- will continue to be unemployment. Brinkmann says that "the time of job destruction is over" in this cycle - that is, the number of new layoffs and new unemployment insurance claims filings are trending down.
But we haven't yet moved into the next phase nationwide - that of "job creation," which may not begin until later in the year, he says, and may be a long, slow process.
The National Association of Realtors' chief economist, Lawrence Yun, sees a strong sales year ahead - up 20 percent over 2009. In some markets, he also expects to see a return to modest and sustained price increases - anywhere from two to five percent on average.
Will higher interest rates put a big dent in these projections? Many economists are forecasting 30 year rates in the upper 5 percent range later in the year.
Those higher rates won't help - but last week they headed in the opposite direction. Thirty year fixed rates averaged 5.1 percent and 15 year rates were half a point below that - both down slightly from the week before, according to the Mortgage Bankers' national survey.
Published: January 19, 2010
Will housing outperform the overall economy in 2010 as we pull out of the Great Recession?
Nothing is absolute in the predictions business, but there are solid indications that, yes, housing is likely to rebound more energetically than the overall economy.
Here's why: Even the most bearish Wall Street analysts now concede that home sales are up in many areas from year-earlier levels -- sometimes by extraordinary percentages.
For example, MDA DataQuick reports that sales in the greater Phoenix market in November were 62 percent higher than the year before.
Prices either have bottomed out in dozens of these markets or are close to it. That's because the distressed sales component of local volume - short sales, REOs and foreclosures - has been declining slowly but steadily.
In his latest forecast, Jay Brinkmann, chief economist for the Mortgage Bankers Association, says both existing and new home sales will be higher in 2010 than in 2009 - and 2009 was better than 2008.
No question that a key part of the energy in housing will be the direct result of stimulus efforts by the federal government - especially the two tax credit programs -- that will push sales and even pricing through mid year.
The overall economy, on the other hand, according to Brinkmann, is likely only to grow slowly in the first half of 2010, and not really warm up until the second half.
The heavy anchor dragging on national economic growth -- and on housing demand -- will continue to be unemployment. Brinkmann says that "the time of job destruction is over" in this cycle - that is, the number of new layoffs and new unemployment insurance claims filings are trending down.
But we haven't yet moved into the next phase nationwide - that of "job creation," which may not begin until later in the year, he says, and may be a long, slow process.
The National Association of Realtors' chief economist, Lawrence Yun, sees a strong sales year ahead - up 20 percent over 2009. In some markets, he also expects to see a return to modest and sustained price increases - anywhere from two to five percent on average.
Will higher interest rates put a big dent in these projections? Many economists are forecasting 30 year rates in the upper 5 percent range later in the year.
Those higher rates won't help - but last week they headed in the opposite direction. Thirty year fixed rates averaged 5.1 percent and 15 year rates were half a point below that - both down slightly from the week before, according to the Mortgage Bankers' national survey.
Published: January 19, 2010
Tuesday, September 22, 2009
Real Estate Outlook: Recession is Over
Now it's official. The chairman of the Federal Reserve Board himself has said it publicly that it looks like the recession is over.
Here comes the recovery.
But there was a big footnote in Bernanke's speech on the economy last week in Washington: Don't look for a dramatic recovery.
It'll be more like a slow moving, plodding sort of improvement where the economy inches toward expansion. But there'll be no sudden, splashy return to economic boomtime anytime soon.
Bernanke's point about the end of the recession was underscored by a 2.7 percent jump in retail sales for the month of August, according to the Commerce Department.
That's an important indicator because the key to pumping up the economy again is to get consumers spending, and that appears to be happening. Not just for auto sales, which got a big boost in August from the government's "cash for clunkers" program, but also for other key categories, like food and clothing purchases, department store retail, entertainment and restaurant spending, sporting goods.
They were all up for the month, after having been mainly down for well over a year.
One reason for the pick-up in consumer spending: People feel more confident about the direction of the economy in the months ahead. They see the stock market up, so their retirement funds and 401 K plans are bouncing back.
They see home values stabilizing or growing in most areas, so their equity is beginning to increase again.
The one big negative -- and it's definitely a drag for housing -- is the unemployment rate, which Mr. Bernanke said won't be coming down fast, even with the end of the recession.
Nonetheless, the vast majority of Americans who do have jobs have seen their real wages rise this year, up five percent. That's the largest annual gain in fifty years.
All of this is feeding into the housing sector in key markets, such as southern California, where August sales were up 11 percent compared with the year before, according to MDA DataQuick. Even prices are rising slightly.
In the combined markets of Los Angeles, San Diego, Orange County, San Bernadino-Riverside and Ventura, the median price of homes sold gained 2.6 percent in August, which is very encouraging for one of the hardest-hit boom-to-bust areas of the country.
Meanwhile, the mortgage market continues to be exceptionally positive for housing sales and values: 30 year fixed rates averaged just above 5 percent last week, according to the Mortgage Bankers Association, and 15 year loans averaged 4.4 percent.
Published: September 22, 2009
by Kenneth R. Harney
RealtyTimes.com
Tuesday, August 25, 2009
Y-O-Y Condo Home Sales Rise For First Time Since 2005
Washington, D.C.--For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of Realtors (NAR). It is also the first time since November 2005 that sales are higher that the previous year.
Existing condominium and co-op sales jumped 12.5 percent to 630,000 units in July from 560,000 in June, and are 5.9 percent above the 595,000-unit level a year ago.
Overall existing-home sales, including single-family, townhomes, condominiums and co-ops, rose 7.2 percent to 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.
Lawrence Yun, NAR chief economist is encouraged. “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he says.
The median existing condo price for example was $178,800 in July, down 18.9 percent from July 2008.
The monthly sales gain was the largest on record for the total existing-home sales series dating back to 1999. “Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint,” Yun says.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.22 percent in July from 5.42 percent in June; the rate was 6.43 percent in July 2008.
An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the first-time buyer tax credit is working. “In addition to first-time buyers, we’re also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they’re also freeing some existing owners to sell and make a move,” he says.
Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain.
The national median existing-home price for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008. Distressed properties continue to weigh down the median price because they typically sell for 15 to 20 percent less than traditional homes.
Published: August 21, 2009
By Anuradha Kher, Online News Editor
www.multihousingnews.com
Existing condominium and co-op sales jumped 12.5 percent to 630,000 units in July from 560,000 in June, and are 5.9 percent above the 595,000-unit level a year ago.
Overall existing-home sales, including single-family, townhomes, condominiums and co-ops, rose 7.2 percent to 5.24 million units in July from a level of 4.89 million in June, and are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.
Lawrence Yun, NAR chief economist is encouraged. “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he says.
The median existing condo price for example was $178,800 in July, down 18.9 percent from July 2008.
The monthly sales gain was the largest on record for the total existing-home sales series dating back to 1999. “Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower priced homes has spiked, and a lack of inventory is becoming a common complaint,” Yun says.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.22 percent in July from 5.42 percent in June; the rate was 6.43 percent in July 2008.
An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the first-time buyer tax credit is working. “In addition to first-time buyers, we’re also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they’re also freeing some existing owners to sell and make a move,” he says.
Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain.
The national median existing-home price for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008. Distressed properties continue to weigh down the median price because they typically sell for 15 to 20 percent less than traditional homes.
Published: August 21, 2009
By Anuradha Kher, Online News Editor
www.multihousingnews.com
Monday, March 2, 2009
Market Update
Source is Mortgage broker Sergio Giangrande
Stocks around the globe are lower on fears that the recession is getting worse. Last Friday, US Stocks closed February with their worst performance since 1933. The S&P 500 dropped 10.9%, and has dropped 18.6% so far this year, the worst start to the year on record. And Stocks are getting no relief at the moment as the Dow trades below 7,000 for the first time since 1997.
Also pressuring Stocks lower is news that insurance giant AIG International is set to receive another lifeline from Uncle Sam to the tune of $30B after losing $61.7B in the 4th quarter of 2008...a record loss for a US company. Think about that. Losing $61B is like losing almost 1 Billion dollars a day for every business day during the quarter...or $125 Million per hour. Scary. And speaking of scary - Stock investors are clearly worried as to how far prices will drop before reaching a bottom. There have been many technical support levels that have been violated. Our charts show that the next floor of support is at 716 on the S&P, which was tested today - that floor goes back to December of 1996. Let's hope that level can hold.
With Stocks in the doldrums, you'd think Bonds would be off to the races. But that's not the case as Bonds can muster only modest gains as they continue to trade sideways, capped by both the 25 and 50-day Moving Averages. Bond Traders are certainly aware that Stocks are due for a major relief rally...and when that happens, Bonds will be sold off a bit. So the smart play for those Bond Traders is to not get too long ahead of the inevitable Stock reversal. Bonds are near unchanged on the day and are already well off the best levels seen earlier in the session. We can Float carefully here, but don't be surprised if you get a Lock Alert, should Stocks finally reverse higher.
In other news, households are hoarding their cash...in January, the Personal Savings Rate rose to a 5% annual rate, a 15-year high. January Personal Spending also rose to 0.6% versus estimates of 0.4%, while Personal Income rose 0.4%, higher than estimates of -0.2%.
By The Number$
1. AFTER 2 MONTHS - The S&P 500 is down 18.2% (total return) after the first 2 months of 2009, double the 9.1% YTD loss that the stock index had incurred at the same point one year ago. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: S&P, BTN Research).
2. SOME BETTER, SOME WORSE - The S&P 500 is down 18.2% YTD through the end of February 2009. 245 of the index’s 500 stocks are down at least 18% YTD. Another 64 stocks in the index are up YTD (source: NASD.com).
3. MOSTLY UP TO MOSTLY DOWN - The S&P 500 fell 10.6% (total return) in February 2009, its 12th down month in the last 16 months (i.e., an average of 3 down months out of every 4 months). In the 200 months prior to the aforementioned 16-month period, “up” months occurred 2 out of every 3 months (source: BTN Research).
4. CATCHING UP - Over the last 15 years (1994-2008), the S&P 500 is up +6.5% per year on a total return basis. In order to have a trailing 20-year average annual total return of +10% by the end of the year 2013 (i.e., 5 years from now), the S&P 500 would have to produce average gains of +21.3% per year over the 5 years 2009-2013 (source: BTN Research).
5. BETTER DAYS AHEAD - Only 6% of over 200 money managers worldwide that were surveyed in early February 2009 believe the global economy will be worse off a year from now (source: Merrill Lynch).
6. BIGGER LOSS - From the S&P 500’s all-time closing high set on 10/09/07 (1565) to last week’s low close on Friday 2/27/09 (735), the index has fallen 53.0%, a tumble greater than the 49.1% loss sustained during the bear market of 2000-02 or the 48.2% loss that occurred in 1973-74 (source: BTN Research).
7. SINKING FEELING - Since reaching closing highs in October 2007, the market capitalization of all US stocks has declined by more than $10 trillion to last Friday’s close. The total market value of all US stocks has fallen to less than $9 trillion by the end of last week (source: Wilshire, USA Today).
8. NATIONAL STAT - The median net worth of American families that rank in the top 10% of wage earners in the country is $1.1 million while the average net worth of that group is $3.3 million (source: Federal Reserve Board’s Survey of Consumer Finances).
9. UPSIDE DOWN - 30% of US homeowners surveyed within the last month that have mortgage debt on their residence believe their outstanding debt exceeds the current fair market value of their home (source: Pew Research).
10. ENOUGH - Nearly 2 out of every 3 American business executives surveyed (64%) do not support the rescue of any additional US industries beyond the bank and auto bailouts that have already been started by the government (source: Deloitte, USA Today).
11. BIG DROP - The size of the US economy (as measured by the GDP) fell by 6.2% in the 4th quarter 2008 (i.e., quarter-over-quarter change expressed as an annualized result), its worst quarterly change since the 1st quarter 1982. There have been only 3 worst performing quarters in the last 60 years. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US (source: Commerce Department).
12. BAD RESULTS - Collateralized debt obligations (CDOs) are investments that are composed of many different asset-backed securities (ABS). Each ABS is an individual bond made up of a pool of assets, e.g., mortgages, auto loans, student loans or credit card loans). 48% of all CDOs (by volume) issued since 2002 have defaulted (source: Wachovia, Financial Times).
13. BUDGET MANAGEMENT - Only 5 of the 50 US states are projecting a balanced budget for the current 2009 fiscal year and for next year’s 2010 fiscal year. The 5 states are Arkansas, Montana, North Dakota, West Virginia and Wyoming (source: Tax Foundation).
14. A VERY LONG TIME - The stimulus package signed into law by President Obama on 2/17/09 has been valued at $787 billion, i.e., the combined value of federal spending and proposed tax cuts over the years 2009-10. It would take an individual spending $1 million a day more than 2,156 years to spend $787 billion (source: BTN Research).
15. MANY CULTURES - More than 2 out of every 5 California families (42%) speak a language other than English within their home (source: USA Today).
Thank you for your trust,
Sergio Giangrande
Mortgage Broker/Banker
United Mortgage Services
Stocks around the globe are lower on fears that the recession is getting worse. Last Friday, US Stocks closed February with their worst performance since 1933. The S&P 500 dropped 10.9%, and has dropped 18.6% so far this year, the worst start to the year on record. And Stocks are getting no relief at the moment as the Dow trades below 7,000 for the first time since 1997.
Also pressuring Stocks lower is news that insurance giant AIG International is set to receive another lifeline from Uncle Sam to the tune of $30B after losing $61.7B in the 4th quarter of 2008...a record loss for a US company. Think about that. Losing $61B is like losing almost 1 Billion dollars a day for every business day during the quarter...or $125 Million per hour. Scary. And speaking of scary - Stock investors are clearly worried as to how far prices will drop before reaching a bottom. There have been many technical support levels that have been violated. Our charts show that the next floor of support is at 716 on the S&P, which was tested today - that floor goes back to December of 1996. Let's hope that level can hold.
With Stocks in the doldrums, you'd think Bonds would be off to the races. But that's not the case as Bonds can muster only modest gains as they continue to trade sideways, capped by both the 25 and 50-day Moving Averages. Bond Traders are certainly aware that Stocks are due for a major relief rally...and when that happens, Bonds will be sold off a bit. So the smart play for those Bond Traders is to not get too long ahead of the inevitable Stock reversal. Bonds are near unchanged on the day and are already well off the best levels seen earlier in the session. We can Float carefully here, but don't be surprised if you get a Lock Alert, should Stocks finally reverse higher.
In other news, households are hoarding their cash...in January, the Personal Savings Rate rose to a 5% annual rate, a 15-year high. January Personal Spending also rose to 0.6% versus estimates of 0.4%, while Personal Income rose 0.4%, higher than estimates of -0.2%.
By The Number$
1. AFTER 2 MONTHS - The S&P 500 is down 18.2% (total return) after the first 2 months of 2009, double the 9.1% YTD loss that the stock index had incurred at the same point one year ago. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: S&P, BTN Research).
2. SOME BETTER, SOME WORSE - The S&P 500 is down 18.2% YTD through the end of February 2009. 245 of the index’s 500 stocks are down at least 18% YTD. Another 64 stocks in the index are up YTD (source: NASD.com).
3. MOSTLY UP TO MOSTLY DOWN - The S&P 500 fell 10.6% (total return) in February 2009, its 12th down month in the last 16 months (i.e., an average of 3 down months out of every 4 months). In the 200 months prior to the aforementioned 16-month period, “up” months occurred 2 out of every 3 months (source: BTN Research).
4. CATCHING UP - Over the last 15 years (1994-2008), the S&P 500 is up +6.5% per year on a total return basis. In order to have a trailing 20-year average annual total return of +10% by the end of the year 2013 (i.e., 5 years from now), the S&P 500 would have to produce average gains of +21.3% per year over the 5 years 2009-2013 (source: BTN Research).
5. BETTER DAYS AHEAD - Only 6% of over 200 money managers worldwide that were surveyed in early February 2009 believe the global economy will be worse off a year from now (source: Merrill Lynch).
6. BIGGER LOSS - From the S&P 500’s all-time closing high set on 10/09/07 (1565) to last week’s low close on Friday 2/27/09 (735), the index has fallen 53.0%, a tumble greater than the 49.1% loss sustained during the bear market of 2000-02 or the 48.2% loss that occurred in 1973-74 (source: BTN Research).
7. SINKING FEELING - Since reaching closing highs in October 2007, the market capitalization of all US stocks has declined by more than $10 trillion to last Friday’s close. The total market value of all US stocks has fallen to less than $9 trillion by the end of last week (source: Wilshire, USA Today).
8. NATIONAL STAT - The median net worth of American families that rank in the top 10% of wage earners in the country is $1.1 million while the average net worth of that group is $3.3 million (source: Federal Reserve Board’s Survey of Consumer Finances).
9. UPSIDE DOWN - 30% of US homeowners surveyed within the last month that have mortgage debt on their residence believe their outstanding debt exceeds the current fair market value of their home (source: Pew Research).
10. ENOUGH - Nearly 2 out of every 3 American business executives surveyed (64%) do not support the rescue of any additional US industries beyond the bank and auto bailouts that have already been started by the government (source: Deloitte, USA Today).
11. BIG DROP - The size of the US economy (as measured by the GDP) fell by 6.2% in the 4th quarter 2008 (i.e., quarter-over-quarter change expressed as an annualized result), its worst quarterly change since the 1st quarter 1982. There have been only 3 worst performing quarters in the last 60 years. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US (source: Commerce Department).
12. BAD RESULTS - Collateralized debt obligations (CDOs) are investments that are composed of many different asset-backed securities (ABS). Each ABS is an individual bond made up of a pool of assets, e.g., mortgages, auto loans, student loans or credit card loans). 48% of all CDOs (by volume) issued since 2002 have defaulted (source: Wachovia, Financial Times).
13. BUDGET MANAGEMENT - Only 5 of the 50 US states are projecting a balanced budget for the current 2009 fiscal year and for next year’s 2010 fiscal year. The 5 states are Arkansas, Montana, North Dakota, West Virginia and Wyoming (source: Tax Foundation).
14. A VERY LONG TIME - The stimulus package signed into law by President Obama on 2/17/09 has been valued at $787 billion, i.e., the combined value of federal spending and proposed tax cuts over the years 2009-10. It would take an individual spending $1 million a day more than 2,156 years to spend $787 billion (source: BTN Research).
15. MANY CULTURES - More than 2 out of every 5 California families (42%) speak a language other than English within their home (source: USA Today).
Thank you for your trust,
Sergio Giangrande
Mortgage Broker/Banker
United Mortgage Services
Wednesday, January 7, 2009
While our market is primarily focused in downtown Chicago, we find the New York Manhattan market offers an interesting parallel...
Like Manhattan, if we focus on our specific Gold coast market of luxury buildings, the data is surprisingly similar. Furthermore, we predict that the pullout or slow down of some expected luxury product will positively affect the demand for luxury condos near Michigan Avenue. Second City? Maybe not. Maybe twin city.
The 4th Quarter 2008
Overview: At the close of the third quarter, there was significant turmoil in the financial markets and unprecedented intervention by federal government agencies. The bailout of Fannie Mae, Freddie Mac and insurance giant AIG, as well as the investor run on the money market Reserve Primary Fund and the bankruptcy of Lehman Brothers, marked a significant change in the
There was a decline in price levels and the number of sales of re-sale apartments. Due to a surge in new development closing activity in the current quarter and a lull in activity in the prior year quarter, the number of new development closings and price levels rose over the period however these sales reflect the market 12-18 months ago. In contrast to the more modest trends of closed sales, contract activity in the current quarter was marked by a sharp decline in sales activity and price levels. A periodic sampling of sales contracts showed a decline of 35% to 75% compared to the same period last year. Current contract price levels show an average decline of 20% from August 2008.
· Median sales price increased 5.9% to $900,000 over the prior year quarter result of $850,000.
· Re-sale median sales price fell 3.6% to $732,500 from $760,000 in the prior year quarter.
· New development median sales price increased 5% to $1,260,000 from $1,200,000 in the prior year quarter skewed by high-end closings.
· Number of sales fell 9.4% to 2,282 units, from 2,518 units in the prior year quarter.
· Number of re-sales fell 24.8% to 1,408 units, from 1,873 units in the prior year quarter.
· Number of new development sales increased 35.5% to 874 units, from 645 units in the prior year quarter caused by the combination of a lull in closing last year and a surge in closings this quarter.
Additional
· Listing inventory increased 39.3% to 9,081 units from the prior year quarter total of 6,518 units.
· Days on market was 159 days this quarter, four weeks longer than the 131 days on market average in the same period last year.
· Listing discount was 7.3%, up from 2.7% in the same period last year.
Co-op Market:
· Median sales price of a co-op this quarter was $675,000, unchanged from last year at this time.
· Number of sales fell 23.4% to 985 units, from 1,286 units in the same period last year.
· Listing inventory levels for co-ops increased 52.2% to 3,808 units from the prior year quarter.
· Co-ops accounted for 43.2% of all sales and 41.9% of all listings this quarter.
Condo Market:
· Median sales price of a condo this quarter was $1,120,075, up 1.8% from the prior year quarter result of $1,100,000. Again, mostly due to new construction units that went to contract 12-18 months ago and just closed this past quarter.
· Number of sales increased 5.3% to 1,297 units, from 1,232 units in the same period last year.
· Listing inventory levels for condos increased 31.3% to 5,273 units from the prior year quarter.
· Condos accounted for 56.8% of all sales and 58.9% of all listings this quarter.
Luxury Market (upper 10% of all co-op and condo sales):
· Median sales price of a luxury apartment this quarter was $4,132,516, down 3.9% from the prior year quarter result of $4,300,000.
· Listing inventory increased 25.5% to 1,730 units from the same period last year and more than doubled from the second quarter. This is primarily due to layoffs in the financial sector.
· Days on market was 169 days, 52 days longer than the same period last year and marks the end of a two year period where luxury properties generally sold faster than the overall market.
Loft Market (co-op and condo sales):
· Average price per square foot declined 1.7% to $1,268 from the same period last year.
· The average size of a typical loft sale jumped 17% to 1,865 square feet compared to the prior year quarter, skewing the results for median and average sales price. The jump was caused by the surge in larger new development unit closings during the period.
So, what does all of this mean and how does it affect your re-sale?
· Most increases in sales prices are artificially skewed by recent closings of new, high-end sponsor condominiums (that went to contract a year or more ago when the market was stronger).
· Re-sale inventory is up dramatically. A lot of this is due to the fact that sponsors of new condominiums are paying higher commissions and giving unheard of incentives to induce agents to show their units before showing re-sale apartments.
· Inventory has increased dramatically. It is taking a lot more time, effort and marketing by agents to secure a sale.
How does this affect your rental?
· With more new condo inventory hitting the market, competitive pricing is very important. Tenants prefer new buildings with great amenities and are negotiating great deals.
· Condominium management companies are charging higher application fees.
· With all of the new competition, any incentives you can offer will help to ensure a quicker rental. Most landlords are now paying a portion of the brokerage fee, condominium application fees, offering free months rent or a combination of all of these.
What if you want to buy?
· Increased inventory, price reductions and other incentives present an unprecedented opportunity to get a great deal…if you have good credit, sufficient down-payment funds, and can qualify with today’s stricter lender guidelines.
In today’s challenging market, hiring an experienced team to help you secure a faster rental or sale is more important than ever. The Minnick Group can help you make important decisions:
- We have over 15 years of experience in every type of
- We are in the top 1% of all agents Nationwide. We had a great year during 2008!
- We have abundant advertising and marketing funds at our disposal.
- We represent over $ 800 Million in
- We advertise extensively internationally and have overseas broker-partners who refer many clients to us every month.
- If you are buying or renting, we can help you choose the right property and present the proper offer that reflects today’s marketplace.
Saturday, February 9, 2008
How the Stimulus Plan Helps Sellers
The stimulus plan approved by Congress last week will be a big boon for those attempting to sell their home in high-priced areas, reports The Real Estate Bloggers.
Tuesday, January 8, 2008
Chicago: Capital of Straight Talk?
Does anyone have any thoughts as to why President Bush chose Chicago as the place to drop his "What, me worry?" stance and admit that the economy is in trouble? The threat that Bush acknowledged is a "reality" is three-pronged: rising oil prices, the job market, and the home mortgage crisis. For a very informative look at the latter, check out the first part of a two-part series by "The Mortgage Professor," aka Jack Guttentag, over at Inman news.
Wednesday, January 2, 2008
The Sky is Not Falling, Part II
The folks over at Real Estate Bloggers have crunched some numbers and come up with some good tidings for the New Year. Their conclusion:
Housing prices in most major cities are still showing long term gains even in the face of a difficult market.
(The bold print is in the original: one has to speak loudly to be heard in this climate!)
Chicago is no exception, but rather a prime example of this trend. Happy New Year!
Housing prices in most major cities are still showing long term gains even in the face of a difficult market.
(The bold print is in the original: one has to speak loudly to be heard in this climate!)
Chicago is no exception, but rather a prime example of this trend. Happy New Year!
Tuesday, November 20, 2007
The Sky Is Not Falling
This analysis of the media's role in the subprime fiasco makes for good and informative reading. The author, Bernice Ross, makes an important point about the geographic specifity of the crisis, which is largely limited to seven states (California, Nevada, Arizona, Florida, Michigan, Ohio, and Indiana). While the high rate of foreclosure may have generalizeable repercussions for the national market, it does not affect every homeowner or potential homeowner in the same way -- if indeed at all.
Wednesday, October 31, 2007
Scary or Merry?
Click the above to read the NY Times coverage of the Fed's decision to lower the interest rate!
Thursday, September 13, 2007
Chicago not Second, Third or Tenth City
Chicago is NOT one of the top ten cities with overextended homeowners, whose housing payments of more than 50% of their income put them at great risk of foreclosure. As The Real Estate Blogger points out, the cities represented on the list are also those with the most dramatic (illusory?) gains over the past few years. Turn to "USA Today" to read the source story in full.
Wednesday, September 12, 2007
Dodging the Recession Bullet
The latest Anderson Forecast predicts a "bumpy ride" ahead during which recession is -- narrowly -- avoided. Inman news has an informative report (click on link to read). Illinois is not on the list of states expected to bear the full brunt of the crisis. Nevertheless, the author of the Forecast anticipates "a whole new mortage finance system when it's all over."
Thursday, September 6, 2007
More Listening: American Heartland Escapes Housing Bust
Today's "Morning Edition" on NPR reports on the solid real estate market in the Midwest.
Friday, August 31, 2007
Chicago-area home prices rise: report
From the Crain's Chicago Business Newsroom August 31 11:15:00, 2007 By Alby Gallun
(Crain’s) — Prices of homes in the Chicago area continued to rise through the first half of the year, albeit at a slower rate, according to a government report released Thursday.
An index of single-family home prices here rose 3.7% in the 12 months ending June 30, after rising 9.1% in the year-earlier period, according to the report from the Office of Federal Housing Enterprise Oversight (OFHEO). Chicago’s rate of appreciation ranks it 139 among 287 U.S. metropolitan areas that OFHEO tracks.
Home prices in the past year have flattened out or fallen in some areas amid rising mortgage rates, tighter lending standards and growing pessimism among buyers. OFHEO’s national price index rose 3.2% in the 12 months ending June 30, the lowest annual price increase in a decade. The index rose just 0.1% in the quarter.
“House prices were basically flat in the second quarter despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment,” OFHEO Director James B. Lockhart said in a news release. “Significant price declines appear localized in areas with weak economies or where price increases were particularly dramatic during the housing boom.”
Ofheo tracks average prices based on repeat purchases or refinancings of the same single-family homes. Because Ofheo analyzes data from Fannie Mae and Freddie Mac, the data covers only properties that have mortgages up to $417,000, the limit on loans the government-chartered firms will buy.
Wenatchee, Wash., had the highest annual rate of appreciation in the country, 23.6%, followed by Provo-Orem, Utah, at 18.2%.
Merced, Calif., led price decliners, with an 8.7% year-over-year drop, followed by the Santa Barbara, Calif., area, with an 8.1% decrease.
Chicago-area home prices edged up 0.3% in the second quarter, and rose 45.0% in the five years ended June 30, according to the Ofheo report.
(Crain’s) — Prices of homes in the Chicago area continued to rise through the first half of the year, albeit at a slower rate, according to a government report released Thursday.
An index of single-family home prices here rose 3.7% in the 12 months ending June 30, after rising 9.1% in the year-earlier period, according to the report from the Office of Federal Housing Enterprise Oversight (OFHEO). Chicago’s rate of appreciation ranks it 139 among 287 U.S. metropolitan areas that OFHEO tracks.
Home prices in the past year have flattened out or fallen in some areas amid rising mortgage rates, tighter lending standards and growing pessimism among buyers. OFHEO’s national price index rose 3.2% in the 12 months ending June 30, the lowest annual price increase in a decade. The index rose just 0.1% in the quarter.
“House prices were basically flat in the second quarter despite tightening credit policies, rising foreclosure rates, and weakening buyer sentiment,” OFHEO Director James B. Lockhart said in a news release. “Significant price declines appear localized in areas with weak economies or where price increases were particularly dramatic during the housing boom.”
Ofheo tracks average prices based on repeat purchases or refinancings of the same single-family homes. Because Ofheo analyzes data from Fannie Mae and Freddie Mac, the data covers only properties that have mortgages up to $417,000, the limit on loans the government-chartered firms will buy.
Wenatchee, Wash., had the highest annual rate of appreciation in the country, 23.6%, followed by Provo-Orem, Utah, at 18.2%.
Merced, Calif., led price decliners, with an 8.7% year-over-year drop, followed by the Santa Barbara, Calif., area, with an 8.1% decrease.
Chicago-area home prices edged up 0.3% in the second quarter, and rose 45.0% in the five years ended June 30, according to the Ofheo report.
Thursday, June 7, 2007
Which Way is the Market Going? (3)
This article from "Business Week" tackles the housing market's worries:
S&P Ratings News April 18, 2007, 7:36PM EST
Housing: Is the Worst Over?
S&P sees some tentative signs that the market is bottoming out, but it will take a while to get rid of excess inventory of unsold homes
by David Wyss From Standard & Poor's RatingsDirect
Like grief, a housing downturn is a multistage process. Stage 1 is denial: If I hold onto the house long enough, I'll get my price. For the U.S. housing market, this stage began in 2005 and ended in mid-2006. Stage 2 is anger: If I can't sell this house, I'll just cancel the sale of the house I was going to buy, and stay where I am. Cancellations of sales agreements now appear to have peaked. Stage 3 is acceptance: I'll get what I can and move on if necessary.
The U.S. housing market appears to be just now entering that third stage, which will probably continue through the rest of 2007. Sales will stabilize, but until the market finishes stage 3 and gets rid of the excess inventory of unsold homes, home prices will continue to drop.
Getting to stage 3 has been painful. In the current housing slump, starts have dropped to an average annual rate of 1.52 million over the past three months, from 2.07 million in 2005. The median existing home price is now down 3.1% from a year ago. By historical standards, however, the falloff in housing starts and sales is still moderate: In the average postwar recession, starts have plunged 50% from peak to trough and to a low of fewer than 1 million units. The decline in the median home price, though, is more uncommon, with the first year-over-year drop since the 1930s likely from 2006 to 2007.
Signs of a Thaw
And homeowners, particularly those with adjustable-rate mortgages, are feeling the financial pressure. Although the economy remains generally strong and unemployment low, higher interest rates are squeezing mortgagees who stretched too far to buy their homes.
Foreclosure rates are rising, though they're still moderate by historical standards.
The good news is some tentative signs indicate that the market is bottoming out, at least in terms of sales and starts. The winter is a bad time to look for signs (other than those that say "For Sale") because weather usually dominates month-to-month movements in sales and, especially, starts. Convincing evidence that the housing market has seen the worst won't appear until we get data on the spring buying season, which started in April.
But the early data suggest that starts are leveling out near 1.5 million and existing-home sales near 6.25 million. The inventory of unsold existing homes has come down to 3.55 million from 3.86 million in July.
Existing-home sales rebounded in January, to a seven-month high of 6.46 million (annual rate), but that remains down 4.3% from January, 2006, and is 8.7% below the record 7.08 million sales reached in the peak year of 2005. New home sales have been hit harder, plunging to a four-year low of 937,000 (annual rate) in January. That's down 20.1% from a year earlier.
Working on Affordability
The reason for the decline is that homes have essentially become more expensive. After all, for the average buyer, a home's price is the size of the monthly mortgage payment. As mortgage rates have risen to their current 6.2% (30-year conventional) from 5.5% three years ago, the effective cost of a house has risen nearly proportionately.
The change has pushed down the National Assn. of Realtors' affordability index (which is based on the monthly income required to qualify to buy the median existing home with a conventional mortgage) to 106.5 in the fourth quarter of 2006 from the record high of 136.5 in the first quarter of 2003.
What could improve affordability? For one thing, Federal Reserve rate cuts, which we expect to begin late this year, would make adjustable-rate mortgages cheaper, helping sales and moderating the impact of rate resets on adjustable-rate borrowers. However, just as the Fed's rate increases since mid-2004 have had little impact on long-term bond yields, and thus fixed-rate mortgages, Fed cuts will also have little impact on long-term rates.
Drag on the Numbers
Rate resets are normally capped in any year and have several more increases to go to catch up with the 4.25 percentage points in rate hikes the Fed has already imposed. Thus, even if the central bank begins to cut rates, resets will continue to push payments up.
Housing is the major factor slowing economic growth in the U.S. If not for the decline in residential construction activity, real GDP growth in the second half of 2006 would have been 3.4%, about even with the average of the preceding four quarters, instead of downshifting to 2.3%. We expect housing to subtract about a percentage point from growth in the first half of 2007. The indirect impact of housing on the economy, however, has so far been small.
Consumers haven't backed away from spending, with the personal saving rate remaining well below zero (negative 1.2% in February). The strong stock market has offset the lower increase in housing wealth. However, trouble could be around the corner if stock prices continue to fall.
Will Borrowing Slow?
One impact has been lower sales of building materials, furniture, and appliances, which are directly related to home purchases. Building material stores reported a 0.4% sales drop in January compared with a year earlier. Furniture sales were up 1.7%. That's below the 4.3% rise in overall retail sales, but at least it wasn't down. Appliance sales are hard to track because stores that sell them also tend to sell electronics, which have been very strong.
One of the biggest questions is whether the higher interest rates and slower rise in home equity values will trim borrowing. Because of home equity loans and cash-out refinancings, Americans have been using their homes as ATM machines. Last year, homeowners took $654 billion (nearly 7% of disposable income) out of their homes. Low interest rates make these loans cheap, especially because they're usually tax deductible.
So far, this activity doesn't seem to be tapering off very much. Refinancings remain high, though some of it probably stems from turning adjustable-rate loans into fixed rates as mortgage holders get the jitters. Moreover, Americans still have a lot of untapped home equity. In fact, the average loan-to-value ratio in the U.S. housing market has barely changed in recent years. It was 46% in the third quarter of 2006, compared with 42% at the end of 2001.
Some Possible Equations
Higher interest rates will probably cut down on borrowing, and thus—eventually—spending, but interest rates, rather than slower home price appreciation, will be the major force. Americans have no shortage of ways to borrow and seem determined to use all of them.
Our baseline U.S. economic forecast includes a two-year drop of 8% in the average existing-home price from the peak reached in early 2006. Along with the growth of income, this decline brings the ratio of home price to income back to 280% by 2010, still above its long-term average of 260%. If the home-price correction comes faster, however, it could help cause a recession. One possibility: Dollar weakness pushes up bond yields and thus mortgage rates, triggering a quicker drop in home prices.
In our alternative economic projection, we assume that bond yields rise sharply, carrying the mortgage rate up to 8% by the end of 2008. Home sales and prices plummet. The average existing home price tumbles 20% from its early 2006 peak, more than twice the decline seen in the baseline. Housing starts drop under 1 million units, a fairly typical recession falloff, by early 2008. The decline triggers a recession, starting in the fourth quarter of 2007.
The stock market drops sharply in response to both weaker earnings and higher bond yields, compounding the impact of lower house prices on wealth. The unemployment rate rises above 6% by yearend, instead of peaking near 5%, as in the baseline. Still, the recession is mild, similar to the 2001 or 1991 downturns.
Worst Case…and Beyond
This scenario is intended as a worst likely case. We believe it has about a 10% probability of occurring. The home-price correction would be severe, in fact unprecedented, at a national level. However, it would be similar to the size of declines seen in Texas in the mid-1980s or in New England in the early 1990s. Even so, the recession it generates is far from severe.
One exacerbating factor could be the subprime market. There's little question that lenders were too enthusiastic in lending money to people who were stretching to buy houses they perhaps shouldn't have bought. When investors become too complacent about risk, and get stung, they often overreact and become too cautious.
Legislative actions aimed at preventing foreclosure would increase losses to lenders and drive up the cost of mortgages. That could compound the effect of overcautiousness by making lenders even less willing to write mortgages. If mortgages are harder to get and more expensive, sales and prices could drop more, and a recovery in the housing market could become very difficult.
Of course, other events, such as oil price shocks or an overall recession, could make economic matters worse in the near future, and any of those possibilities would make our baseline scenario seem benign.
Wyss is chief economist for Standard & Poor's in New York.
Source: www.businessweek.com
S&P Ratings News April 18, 2007, 7:36PM EST
Housing: Is the Worst Over?
S&P sees some tentative signs that the market is bottoming out, but it will take a while to get rid of excess inventory of unsold homes
by David Wyss From Standard & Poor's RatingsDirect
Like grief, a housing downturn is a multistage process. Stage 1 is denial: If I hold onto the house long enough, I'll get my price. For the U.S. housing market, this stage began in 2005 and ended in mid-2006. Stage 2 is anger: If I can't sell this house, I'll just cancel the sale of the house I was going to buy, and stay where I am. Cancellations of sales agreements now appear to have peaked. Stage 3 is acceptance: I'll get what I can and move on if necessary.
The U.S. housing market appears to be just now entering that third stage, which will probably continue through the rest of 2007. Sales will stabilize, but until the market finishes stage 3 and gets rid of the excess inventory of unsold homes, home prices will continue to drop.
Getting to stage 3 has been painful. In the current housing slump, starts have dropped to an average annual rate of 1.52 million over the past three months, from 2.07 million in 2005. The median existing home price is now down 3.1% from a year ago. By historical standards, however, the falloff in housing starts and sales is still moderate: In the average postwar recession, starts have plunged 50% from peak to trough and to a low of fewer than 1 million units. The decline in the median home price, though, is more uncommon, with the first year-over-year drop since the 1930s likely from 2006 to 2007.
Signs of a Thaw
And homeowners, particularly those with adjustable-rate mortgages, are feeling the financial pressure. Although the economy remains generally strong and unemployment low, higher interest rates are squeezing mortgagees who stretched too far to buy their homes.
Foreclosure rates are rising, though they're still moderate by historical standards.
The good news is some tentative signs indicate that the market is bottoming out, at least in terms of sales and starts. The winter is a bad time to look for signs (other than those that say "For Sale") because weather usually dominates month-to-month movements in sales and, especially, starts. Convincing evidence that the housing market has seen the worst won't appear until we get data on the spring buying season, which started in April.
But the early data suggest that starts are leveling out near 1.5 million and existing-home sales near 6.25 million. The inventory of unsold existing homes has come down to 3.55 million from 3.86 million in July.
Existing-home sales rebounded in January, to a seven-month high of 6.46 million (annual rate), but that remains down 4.3% from January, 2006, and is 8.7% below the record 7.08 million sales reached in the peak year of 2005. New home sales have been hit harder, plunging to a four-year low of 937,000 (annual rate) in January. That's down 20.1% from a year earlier.
Working on Affordability
The reason for the decline is that homes have essentially become more expensive. After all, for the average buyer, a home's price is the size of the monthly mortgage payment. As mortgage rates have risen to their current 6.2% (30-year conventional) from 5.5% three years ago, the effective cost of a house has risen nearly proportionately.
The change has pushed down the National Assn. of Realtors' affordability index (which is based on the monthly income required to qualify to buy the median existing home with a conventional mortgage) to 106.5 in the fourth quarter of 2006 from the record high of 136.5 in the first quarter of 2003.
What could improve affordability? For one thing, Federal Reserve rate cuts, which we expect to begin late this year, would make adjustable-rate mortgages cheaper, helping sales and moderating the impact of rate resets on adjustable-rate borrowers. However, just as the Fed's rate increases since mid-2004 have had little impact on long-term bond yields, and thus fixed-rate mortgages, Fed cuts will also have little impact on long-term rates.
Drag on the Numbers
Rate resets are normally capped in any year and have several more increases to go to catch up with the 4.25 percentage points in rate hikes the Fed has already imposed. Thus, even if the central bank begins to cut rates, resets will continue to push payments up.
Housing is the major factor slowing economic growth in the U.S. If not for the decline in residential construction activity, real GDP growth in the second half of 2006 would have been 3.4%, about even with the average of the preceding four quarters, instead of downshifting to 2.3%. We expect housing to subtract about a percentage point from growth in the first half of 2007. The indirect impact of housing on the economy, however, has so far been small.
Consumers haven't backed away from spending, with the personal saving rate remaining well below zero (negative 1.2% in February). The strong stock market has offset the lower increase in housing wealth. However, trouble could be around the corner if stock prices continue to fall.
Will Borrowing Slow?
One impact has been lower sales of building materials, furniture, and appliances, which are directly related to home purchases. Building material stores reported a 0.4% sales drop in January compared with a year earlier. Furniture sales were up 1.7%. That's below the 4.3% rise in overall retail sales, but at least it wasn't down. Appliance sales are hard to track because stores that sell them also tend to sell electronics, which have been very strong.
One of the biggest questions is whether the higher interest rates and slower rise in home equity values will trim borrowing. Because of home equity loans and cash-out refinancings, Americans have been using their homes as ATM machines. Last year, homeowners took $654 billion (nearly 7% of disposable income) out of their homes. Low interest rates make these loans cheap, especially because they're usually tax deductible.
So far, this activity doesn't seem to be tapering off very much. Refinancings remain high, though some of it probably stems from turning adjustable-rate loans into fixed rates as mortgage holders get the jitters. Moreover, Americans still have a lot of untapped home equity. In fact, the average loan-to-value ratio in the U.S. housing market has barely changed in recent years. It was 46% in the third quarter of 2006, compared with 42% at the end of 2001.
Some Possible Equations
Higher interest rates will probably cut down on borrowing, and thus—eventually—spending, but interest rates, rather than slower home price appreciation, will be the major force. Americans have no shortage of ways to borrow and seem determined to use all of them.
Our baseline U.S. economic forecast includes a two-year drop of 8% in the average existing-home price from the peak reached in early 2006. Along with the growth of income, this decline brings the ratio of home price to income back to 280% by 2010, still above its long-term average of 260%. If the home-price correction comes faster, however, it could help cause a recession. One possibility: Dollar weakness pushes up bond yields and thus mortgage rates, triggering a quicker drop in home prices.
In our alternative economic projection, we assume that bond yields rise sharply, carrying the mortgage rate up to 8% by the end of 2008. Home sales and prices plummet. The average existing home price tumbles 20% from its early 2006 peak, more than twice the decline seen in the baseline. Housing starts drop under 1 million units, a fairly typical recession falloff, by early 2008. The decline triggers a recession, starting in the fourth quarter of 2007.
The stock market drops sharply in response to both weaker earnings and higher bond yields, compounding the impact of lower house prices on wealth. The unemployment rate rises above 6% by yearend, instead of peaking near 5%, as in the baseline. Still, the recession is mild, similar to the 2001 or 1991 downturns.
Worst Case…and Beyond
This scenario is intended as a worst likely case. We believe it has about a 10% probability of occurring. The home-price correction would be severe, in fact unprecedented, at a national level. However, it would be similar to the size of declines seen in Texas in the mid-1980s or in New England in the early 1990s. Even so, the recession it generates is far from severe.
One exacerbating factor could be the subprime market. There's little question that lenders were too enthusiastic in lending money to people who were stretching to buy houses they perhaps shouldn't have bought. When investors become too complacent about risk, and get stung, they often overreact and become too cautious.
Legislative actions aimed at preventing foreclosure would increase losses to lenders and drive up the cost of mortgages. That could compound the effect of overcautiousness by making lenders even less willing to write mortgages. If mortgages are harder to get and more expensive, sales and prices could drop more, and a recovery in the housing market could become very difficult.
Of course, other events, such as oil price shocks or an overall recession, could make economic matters worse in the near future, and any of those possibilities would make our baseline scenario seem benign.
Wyss is chief economist for Standard & Poor's in New York.
Source: www.businessweek.com
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