Volatile Market

We saw another week of volatile trading due to a combination of the United States debate being a bit unresolved, foreign debt crisis, anxious investors with losses in the market, and not great performances by tech industries like IBM and Hewlett Packard.

Todd Colvin, vice president at MF Global, explained to the Wall Street Journal, “Investor angst remains very high,” and went on to say, “Good volume associated with a down move typically isn’t a fluke. We’re probably in store for lower prices from here.”

Real estate was a in the news with construction starts for new homes and existing home sales that showed a decrease in the month of July.

As reported by the National Association of REALTORS, existing town homes, co-ops, condos, and single-family home sales dropped 3.5% to an annual rate of 4.67 million in the month of July from seeing a rate of 4.84 million in the month of June. The figures seen last month were 21% higher than what was seen in July of 2010 at 2.86 million sales, which was quite a bit lower after the homebuyer tax credit expired.

Lawrence Yun, NAR’s chief economist stated, “Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” and went on to say, “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

When it came to prices, the national median existing-home price for all housing types was $174,000 in the month of July, dropping 4.4% from what was seen in the month of July 2010. Distressed homes, like short sales and foreclosures were 29% of the sales seen in the month of July, whereas in June, it was 30% and in July of 2010, it was 32%.

The Census Bureau reported building permits for privately owned housing units issued in the month of July dropped to an annual rate of 597,000. This figure was 3.2% below what was seen in June at 617,000, but 3.8% higher than July 2010’s figure of 575,000. Permits for single-family in the month of July were at a rate of 404,000, was a bit higher, 0.5%, above the June figure of 402,000.

Privately owned housing construction starts for the month of July decreased to an annual rate of 604,000, which was 15% lower than June’s estimate of 613,000, however it is 9.8% higher than the July 2010 rate of 550,000. Construction starts for single-family homes in the month of July were at a rate of 425,000, which is 4.9% lower than June’s figure of 447,000.

New homes completions increased. Construction completions of privately owned housing in the month of July hit an annual rate of 636,000, which is 11.8% higher than the June estimate of 569,000, and 9.5% higher than the July 2010 rate of 581,000. Completions of single-family housing units in the month of July were at a rate of 470,000, which is 6.1% higher than the June rate of 443,000.

As reported by the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers rose 0.5% in the month of July. Over the last 12 months, prices for the “all-items” index rose 3.6% before seasonal adjustment.

The gasoline index rose in July, which accounted for around half of July’s all-items increase. Groceries saw an overall increase with fruit and dairy prices seeing the most gains.

The index for all items except food and energy rose as well, by 0.2%. The gain was attributed to the shelter index, which gained in July, and the apparel index, which increased as well.

No change was seen in new vehicles or in household furnishings and operations while recreation dropped a tad.

The Census Bureau reported the Producer Price Index for finished goods increased 0.2% in the month of July after seeing a 0.4% drop in the month of June and a 0.2% increase in the month of May. Prices received by manufacturers of intermediate goods inched up 0.2% in the month of July, and the crude goods index dropped 1.2%.

The Employment and Training administration reported first unemployment benefit claims for the week that ended on August 13 reached 408,000, a rise of 9,000 from the prior week’s figure of 399,000. The four-week moving average was 402,500, a drop of 3,500 from the prior week’s average of 406,000.

The figure for insured unemployed workers during the week that ended on August 6 was 3,702,000, a rise of 7,000 from the prior week’s level of 3,695,000. The four-week moving average was 3,716,000, a drop of 4,500 from the prior week’s average of 3,720,500.

Looking Forward
New home sales totals
July’s durable goods orders
First jobless claims
Second quarter’s gross domestic product
Consumer sentiment figures for August

Change is still the top trend in the real estate industry

The 2nd quarter of 2011 still shows the real estate market is up and down which means that change is still occurring and nothing is impossible.

When it comes to real estate today, you will hear different stories according to the person talking and where your home is located. The bottom line is that homebuyers are few and far between with the main reason being the falling prices.

Yes, lower prices encourage those looking for a great deal, but it can cause those looking for a home to back off. Who wants to buy a home to have the price drop lower than what they paid?

The good news is that in major cities home prices were back to the levels seen in the summer of 2003. Home prices may be on the rise however, the housing market is still the weakest link in the United States economy.

Home prices have not fully recovered and will not until the number of foreclosures are reduced, companies being hiring in larger numbers, banks have some slack in lending rules, and more families feel comfortable about buying a home.

Barry Newman, a HouseHunt agent working for @properties in Deerfield, Illinois stated, “Prices are going down, and they have to go down,” and went on to say, “I don’t think we’ve hit the bottom, and I think there are a lot of people holding back because of all the foreclosures on the market.”

Other agent across the US that was polled by HouseHunt.com stated the 2nd 2quarter of 2011 was about the same as the 1st quarter with numbers steady but a bit from prosperous times.

Joyce Pettit of Keller Williams Realty in Boiling Springs, South Carolina stated, “It’s slower this year than last year for me, and if I’m judging from the previous few quarters, people are still looking and still buying, but, overall, they’re a lot more particular,” and went on to say, “I’m hoping that prices have pretty much stabilized here. I don’t think they can fall a whole lot more.”

Sixty four of those that responded to the poll said that prices were down from the first quarter at 56%, but went on to say that 19% said that appreciation is up 0 to 5% when in the 1st quarter the figure was 21%. Seven percent of respondents said prices were up around 5 to 10 percent when compared to the 1st quarter at 9%. Five percent said prices were up 5% when compared to the 6% seen in the 1st quarter.

HouseHunt agent Kristen Malcolm of Coldwell Banker in Cherry Hills Village stated, “Houses are moving, inventory has dropped because so many houses have gone under contract and sold, and in Cherry Hills there have been quite a few instances where people have gotten full asking price and multiple offers,” and went on to say, “There’s so much demand; so much is going under contract and selling. There are lots of buyers.”

There are still more home sellers being seen than buyers with 52% saying there are more in sellers in their communities.

When it comes to inventory, 82% of respondents stated that there is a good supply only down a bit from the 1st, which was 87%. Asking prices are better with more home sellers receiving around 95% of their target price.

Clyde Thomas, an agent with Coldwell Banker stated, “We lost more than 4,000 homes because of flooding. It’s not a good situation right now, and there’s a real fight when it comes to homes coming up on the market.”

“There are far more sellers than buyers,” Thomas said. “It’s been pretty hard.”

In May, the national median price for existing homes was $166,500, which was close to 5% below the comparable price seen in May 2010, as reported by the National Association of Realtors. The average interest rate for a 30-year fixed-rate mortgage was 4.5%, which is a bit above the four-decade low of 4.17% seen in November.

Mike Bearden, president and CEO of HouseHunt Inc. stated, “I don’t yet see the light at the end of the tunnel.  Prices are still declining in most areas despite incredibly low prices and interest rates. Many sales these days are all cash investor sales. Banks must start lending money to more prospective home purchasers for housing prices to stabilize and begin to increase. The banks are waiting for a better economy and stronger employment, but those cannot be achieved without housing participating in the recovery. We will see how the rest of 2011 plays out; then we may have a clearer picture as to when housing will recover.”

Other important results from the 2nd quarter 2011 survey by HouseHunt.com

84% average days on the market, was over 60 days and is closer to 4 months.
66% most customers were repeat buyers or investors, which is up from what was seen in the 1st quarter of 58%.
65% stated they are seeing more multiple offers on their listings.

Tear Down Programs in San Diego

Some select lenders in the San Diego area are faced with inventories of foreclosures rising have started tear down programs to help lower their existing home inventories. Instead of allowing these homes to enter the already flooded market, which will bring on more pressure on the existing home sales, some major banks are tearing down the homes that have recently foreclosed. In San Diego close to 27,000 homes are foreclosed on each year. Last month, San Diego was in the 2nd position for REO filings with Maricopa County in Arizona topping the list, which is up 534 percent.

JP Morgan, Wells Fargo, and Bank of America are now destroying their REO inventory. The way the properties are chosen varies from lender to lender. One major consideration is the projected tax write off for the transaction. If the home was not foreclosed on with the idea of tearing it down, tax write offs can be given at up to full market value.

The problem of foreclosed homes

Bank of America foreclosed on over 40,000 homes during the 1st quarter of 2010. The southwestern US is affected more than other areas of the US at this time. Just last month there were over 42,462 homes in pre-foreclosure and found in auction filings, which equals 4 out of every 10 filings across the United States.  

There is controversy concerning this new program.  Families that have lost their homes due to foreclosure over the last four years are now homeless, living in shelters, on the street, or with family or friends.

What is better? Should these families still be living in their foreclosed homes? Should the homes be used for shelters for others that are homeless? What should be done with the homes that are fast becoming eyesores and in need of repair?

What is the real solution for the banks that are holding 100,000 foreclosed homes? Should the banks just hold on to the properties, pay the property taxes, and keep maintaining these homes until the market is better?

Drop in Existing Home Sales

June saw a drop in existing home sales but an increase in construction and new home permits. Existing home sales, which include town homes, condos, and single-family homes, decreased 0.8% in the month of June to an annual rate of 4.77 million. In May, the figure was 4.81 million. This figure was 8.8% lower than the 5.23 million-unit level seen in June of 2010 as reported by the National Association of Realtors.

The National Association of Realtors explained that this low figure was due to cancellations of contracts. In addition, the National Association of Realtors the Midwestern and southern US saw gains in sales however, this activity was offset by the drops seen in the western and western US. Single-family home sales stayed the same while condos dropped a bit. Lawrence Yun, NAR’s chief economist stated that overall, any recovery in the market has stayed uneven.
“Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market, including an unusual spike in contract cancellations in the past month,” he explained. “The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.”
Existing home sales did not perform well; there is still some optimism for June’s market. Building permits that were issued for private homes for the month of June increased to an annual rate of 624,000, which is a 2.5% rise over the figure seen in the month of May at 609,000 as reported by the Census Bureau. Building permits for single-family homes saw a 0.2% gain at 407,000 over May’s figure of 406,000. Permits for all homes in the month of June were 6.7% over the estimated figure of June 2010 at 585,000.

Construction of private housing starts for the month of June were at 629,000 which is an increase of 14.6 over what was seen in May at 549,000 and 16.7% above the figure seen a year ago of 539,000. Construction of single-family home starts for June rose to 453,000, which is 9.4% higher than the figure seen in May at 414,000.
Building permits may have seen a rise, but completion in the construction market was down in June which was 535,000 being 1.7% below the estimate in May of 544,000 and 39.3% below a year ago at 881,000. Single-family home construction completion for the month of June was at 436,000, which is the same as May’s rate of 436,000.
First claims for unemployment benefits were up for the week that ended on July 16, after seeing a drop the prior week, as reported by the Employment and Training Administration. Claims for the week rose to 418,000, a rise of 10,000 from the prior week’s figure of 408,000. The four-week moving average was at 421,250, a drop of 2,750 from the prior week’s average of 424,000.  

The week that ended on July 9 saw a total number of insured unemployed workers at 3,698,000, as published by the Employment and Training Administration reported, which is a drop of 50,000 from the prior week’s level of 3,748,000. The four-week moving average was 3,720,500, a drop of 4,000 from the prior week’s average of 3,724,500.

Even though the recovery in the housing market is uneven, consumer sentiment rose in the month of June but only very small. The Leading Economic Index for the month of June rose 0.3% to 115.3, after seeing a 0.8% rise in the month of May, and a 0.3% drop in the month of April, as reported by the Conference Board reported last week.
Looking forward into the coming week reports
New home sales for June reported by the Census Bureau
Consumer confidence data for July reported by the Conference Board
First unemployment claims for the last week reported by the Employment and Training Administration
Q2 gross domestic product information reported by the Bureau of Economic Analysis consumer sentiment data for the month of July reported by the University of Michigan.