May Existing Home Sales
The May existing home data was published today by the NAR. Here are the key points.
- May sales were up 2.4% from April, the first back-to-back monthly gain since Sept, 2005.
- Rate: 4.77 million, or 4% below May, 2008
- The $8,000 tax credit for first time buyers, and the relatively low 30 year fixed mortgage rate of 4.9% helped spur sales. The difficulty of producing a good appraisal in markets with large numbers of distressed homes suppressed sales.
- Existing home inventory fell from 10.1 months in April to 9.6 months in May. Six months is the goal.
- Distressed homes were 33% of the total in May, down from 45% in April.
- The average home price was $173,000, which is 16% below a year ago.
- Regional trends were the same as last month, except that transactions in the West fell slightly from April. Prices in the West were 31% below last year.
Prices have to bottom before we can declare an end to the housing crisis. It appears that the supply of foreclosures is about to increase sharply, which could drive prices down even more. The affordability index is high, however, so lower prices may draw apartment dwellers into the housing market stabilizing prices.
Here's an interesting related comment from Richard Smith, CEO of Realogy which owns Cartus, from americanbanker.com.
Some economists have called a bottom in the housing market, but the head of the world's largest real estate brokerage franchisor is unconvinced.
Richard Smith, the president and chief executive officer of Realogy Corp., said it is impossible "to view the current market as a recovery period" because 45% to 50% of home sales are coming from repossessed properties. (His Parsippany, N.J., company owns the Century 21, Coldwell Banker and Sotheby's International Realty franchises.)
"We're not out of the woods yet," Smith said. "If you assume we're on a run-rate of 4.5 million units a year and half are REO" — real estate owned — "and the normal business is 5.5 million units, then what's left is — we're still in a very big hole."
Another wave of REOs is expected this year because the Obama administration's loan modification programs "just aren't working," Smith said.
Roughly 1 million REO properties are on the market, and another 800,000 to 3 million foreclosures are expected to hit the market during the next 18 months, he estimated.
"You're not really going to see prices increase until you work through the backlog and excess inventory of REO properties."
And here's the full story from the NAR.
Comments
Existing home sales
Prices do have to bottom to declare a turnaround in housing. While the argument that housing is affordable and will lure buyers into the market is true, it does not account for the fact that supply continues to outweigh demand by a large number. There are still too many resetting adjustable rate mortgages that will likely be defaulted on in the coming years for housing to meaningfully stabilize at this point. With more supply on the market and less ability for consumer to purchase homes, it is unlikely that we will see a meaningful rise in housing prices in the foreseeable future.
Banks holding off on foreclosures...
Very interesting article. I must say, however, that I disagree with Smith.
Another wave of REOs is expected this year because the Obama administration's loan modification programs "just aren't working," Smith said.
It's not the lack of success in the loan modification programs that's created the foreclosures. Banks are holding off on allowing these homes to get foreclosed on because once a loan is declared 'written off' - the bank has to raise it's reserves.
So - it's cheaper to have tons of non-performing (yet still on the books) mortgages.
Granted - the loan modification programs aren't working out so well - but again - can't blame Obama administration for that either necessarily as no administration can mandate forced loan modifications, and lenders and servicers aren't exactly staffed nor have the systems in place to actually implement the loan modifications suggested through the guidelines in Making Homes Affordable. Backlogs for loan mod requests are notorious and the modest $1000 incentive isn't sufficient to counteract lack of staff, lack of systems in place to process or contact borrowers, not to mention issues regarding the legality of making changes to loans where the owners are a pool of investors and the complexity of these investor guidelines and restrictions.