There was general agreement on the increase in home price levels in May in data released from by two different sources this morning.
The Federal Housing Finance Agency’s (FHFA) House Price Index (HPI) showed seasonally adjusted home prices up 0.8 percent from April to May and 3.7 percent over the last 12 months while Radar Logic’s RPX Composite Price rose 0.7 percent from April and 2.6 percent year-over-year.
On a non-seasonally adjusted basis the HPI was up over 1.5 percent in May. FHFA also revised its previously reported 0.8 percent increase in April down to a 0.7 percent increase. The Index is now 17.0 percent below the peak it hit in April 2007 and is roughly the same as its level in May 2004.
The HPI increased in eight of the nine census divisions with the exception, the West South Central Region (Oklahoma, Arkansas, Texas, Louisiana) declining, off 1.0 percent. The other regional increases ranged from +0.5 in the Middle Atlantic Region (New York, New Jersey, Pennsylvania) to +1.7 in the Pacific division (the coast, Hawaii, Alaska). Eight of the nine census divisions are in positive territory on an annual basis ranging from an increase of 0.5 percent in the Middle Atlantic to 6.3 percent in the Mountain division (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico. The ninth census division, New England, is unchanged since May 2011.
FHFA’s index is calculated using purchase prices of houses with mortgages sold to or guaranteed by Fannie Mae or Freddie Mac while Radar Logic tracks housing prices gathered from public sources.
In analysis accompanying the report, Radar Logic said it views claims that housing prices have bottomed as premature. “Those people looking at current results and calling a bottom are being dangerously short sighted,” said Michael Feder, Radar Logic’s CEO. “Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.” The company also said that it viewed reports of diminishing supply as “greatly exaggerated.”
The RPX Composite price (reported on a per square foot basis) increased $14.27 (8.3 percent) from the beginning of 2012 through May 23, much more than the increases during the same period in 2009, 2010 and 2011, but called the rapid increase thus far in 2012 as “consistent with the hypothesis that mild winter weather temporarily boosted demand.” This will be reflected in an earlier seasonal weakness in demand, probably in May or June rather than in the usual July or August timeframe the company said.
Even if the mild winter theory doesn’t play out, Radar Logic expects short-term appreciation to short-circuit longer term appreciation and perhaps even trigger further declines. This would occur on the supply side as higher prices provoked both financial institutions and homeowners to put their properties on the market while on the demand side the higher prices may deter investors.
Detached sales in the North SD County Coastal region were smoking hot last month.
The average cost-per-sf has been bouncing along in a 10% range, with a recent spike lately.
There were 280 detached sales in May, the highest monthly sales count since 2005 (in red).
Total sales in the first five months of 2012 have out-performed the last three years too, probably due to slightly lower pricing and rates:
Year
# of sales, first 5 months
Avg. $/sf
2009
696
$399/sf
2010
975
$382/sf
2011
1,030
$374/sf
2012
1,128
$368/sf
The 2012 sales were 62% higher than in 2009!
There doesn’t seem to be enough new inventory coming to market to think the trend will continue, but there are 671 houses marked pending or contingent – hopefully that will mean the sales momentum will last a few more months?
With supply of new listings being sluggish, and buyer demand overheating with historically low rates, people were saying earlier that prices are bound to go up. But will they, and if so, how fast?
Let this CV listing be a test.
The last sale of this model was in November, 2010, for $680,000 – and it was an interior location, but the upgrades were similar.
If this one sells closer to the bottom of the range, then the frenzy is in check. If it sells towards the top of the range (or over), then the market is on fire:
Rich Toscano noted here that the low-inventory conditions might cause some appreciation:
Months of inventory, which measures how many homes are for sale compared the rate at which they are being purchased, was notably lower than in recent Januaries past:
There was 26.3 percent less supply by this measure than in January of 2011, and 4.2 months of inventory is the lowest reading we’ve seen in nearly two years. Prices may have been dropping of late, but if supply remains this constrained and rates remain incredibly low (that second one is a big “if”), it’s certainly plausible that prices could start to rebound once the spring season gets underway.
The January trend of lower-supply-higher-demand has continued, reminding me of the frenzy era.
Let’s compare the amount of detached homes coming on the market to the number of solds, to see how 2012 is shaping up. Though the number of new listings and number of solds are mostly unrelated to each other, if we compare the same categories for the same time frames each year we can analyze the trends. (La Jolla was omitted again by MLS glitch)
Here’s a review of the January 1st-to-February 20th period for NSDCC detached listings, where lately we are seeing fewer new listings but sales are increasing anyway:
Year
# of New Listings
# of Solds
NL/S
2000
589
291
2.02
2001
731
294
3.00
2002
736
325
2.26
2003
784
321
2.44
2004
554
293
1.89
2005
595
282
2.11
2006
869
243
3.58
2007
758
224
3.38
2008
750
171
4.39
2009
688
168
4.10
2010
678
205
3.31
2011
697
228
3.06
2012
582
231
2.52
Here is how the NL/S looks on a graph – we are back to the 2.0-3.0 range of the frenzy era:
But will we see appreciation? We might see some spots where a flurry of activity might give you a temporary buzz, but it will be short-lived. Here are reasons why:
1. Pent-up supply is waiting just under the surface, and any sign of higher pricing should cause sellers to flood the market. But such a surge will be counter-productive, because greed will cause sellers to tack on an extra 10% on top of the temporary blip, making them look ridiculous in the eyes of the buyers.
2. Our artificially-low rates have been declared to last through 2014. Buyers are patient and unfazed by the threat of higher rates in 2012. We might see an appreciating market be more likely in a couple of years if the threat of higher rates begins to materialize, but buyers aren’t going to pay more now just because they think rates are rising.
3. We are in a short-sale environment, where realtors have more control of pricing. Short-sale listing agents want quick sales, and will price at recent comps or lower. They’re not going to test higher pricing boundaries – they don’t have to, unless the banks really get their act together on valuations and can detect a rising trend. Based on their drip system, it looks like the banks still believe the market is in free fall.
CR’s bottom call caused many to scoff, and point to various ivory-tower theories to refute it.
This is what he said, which is more of a technical call about home-price indexes:
And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.
The house-price indexes are good for measuring the general regional or national trend, and reflecting some consumer sentiment.
The naysayers are using either general theories with little or no specific current evidence to support them, or they declare that history always repeats itself so we don’t have to consider relevant facts.
Let’s examine these theories, and use actual evidence from the street in rebuttal.
These apply to my local market, but because San Diego is not different, they could apply to other areas. You can decide for yourself:
1. Wages/Incomes haven’t risen, high unemployment/no jobs, and household formation is lagging.
There are people who are struggling, and I have empathy.
But in spite of the unemployment/no jobs/no raises, there has still been a healthy demand for houses that are priced correctly (around recent sales), and it is building steam.
Consider my listing at 554 Meadowbrook, which was mentioned on the talk show with Bill. We ended up having to take the one owner-occupied offer because Fannie gives them special consideration for the first 14 days on market. But he had a tax lien on him that he couldn’t resolve.
The house went back on the open market, and open to investor offers. Between Friday and Tuesday there were eleven all-cash offers submitted, and it sold over list price.
There is nothing about this house that would warrant such a fanatical response – see for yourself:
Could unemployment/no jobs/no wage increases cause people to have to sell their house? Yes, but there were 11 cash investors that are willing to pay retail or close for this dog, plus another couple dozen phone calls from people who would have paid less and didn’t offer.
Investors are providing a pricing floor to the market, and either flipping or building their portfolio. If the market runs out of steam and they can’t flip, they will be stuck renting them, but that is their problem – they are paying cash.
Furthermore, virtually every offer I make on behalf of clients finds itself in a bidding war. We are like most buyers and only chasing the good buys, but there is competition literally on every single offering. There could be hundreds of additional sales if sellers would get off their high horse, price-wise.
2. Shadow inventory/underwaters – Laurie Goodman is still the current record-holder of the highest guess – she expects 10 million more foreclosures. Four or five million houses sell every year in America, so if a third of those are distressed sales, we could clear out the entire inventory of those underwater in 5-6 years. But have you noticed how reluctant people are to give up their house?
Let’s note how hot the market is now – San Diego County detached-home listings:
Active detached-home listings:
REO/SS: 1,558
Non-REO/SS: 3,930
Total active detached listings: 5,488
Pending/Contingent detached-home listings:
REO/SS: 3,405
Non-REO/SS: 2,142
Total pending and contingent detached listings: 5,547
There are more listings that are pending/contingent than active!!!
In addition, the REO and short-sale listings are the hot sellers. We are regularly seeing short sales get approved in 60 days (we got two approved this week) and buyers are more willing to wait, due to the overall low inventory.
Bring on the distressed properties, buyers are waiting! The Fed/Gov/Banking troika will ensure that they are dripped out in an orderly fashion.
3. Overshoot
Overshoot already happened in San Diego, at least at the lower-end where everyone thinks recovery has to start. I’ll use Oceanside for an example, one of the largest towns in the county and full of regular folks.
Detached-home sales under $200,000:
2008: 101
2009: 214
2010: 80
2011: 79
2012: 6 houses currently for sale under $200,000 in Oceanside, and three of the six are priced at $199,900.
4. Higher-end hasn’t corrected yet.
These are the houses worth keeping, and owners will try harder to find a way. There are only 654 properties (in a county of 3 million people) that are on the default lists with loans over $800,000. Last year we sold 2,248 SD County properties over $800,000 – we can handle more higher-end distressed sellers.
5. Can’t get mortgage financing.
An bold-face lie spewed by those not in the business, and just scraping for headlines.
6. When rates go up, everyone is toast.
According to the Fed statement, they won’t be raising their rates until late-2014. If the bond market went nuts, and mortgage rates jumped more than 2% (we’d handle anything less) the Fed/Gov will find a way to ease the pain. They’ve given their banking buddies too much help to screw it up now.
7. The trillions in government debt has to come home to roost.
The USA will conduct a strategic default if/when needed. Every county does, and at some point, there won’t be any other choice.
We’ve been in these market conditions for almost three years. Whether we label it ‘bottom’ or not, this is what we have – a trading range of about 10% for any property, with swings in that range based on the quality of the physical condition/sellers/agents.
People should question the application of old theories/history in an environment that is unprecedented. Consider the upside surprises – the two big ones are how much cash is in play, and how resilient underwater sellers have been so far.
For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.
As the first graph shows, housing starts, both total and single family, bottomed in 2009 and have mostly moved sideways since then – with some distortions due to the ill-conceived housing tax credit.
New Home sales probably bottomed in mid-2010 and have flat lined since then.
Back in 2009, when I first wrote about the two bottoms, I thought we were close on housing starts and new home sales – but that it was “way too early to try to call the bottom in prices.” In real terms, house prices have fallen another 10% to 15% since I wrote that post according to the CoreLogic and Case-Shiller house price indexes.
And it now appears we can look for the bottom in prices.My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.
The problem with using the house price indexes to look for a bottom is that they are reported with a significant lag. As an example, the recently released Case-Shiller index was for November and the index is an average of September, October and November – so it is a report for several months ago. The CoreLogic index is a little more current – the recent release was for December, and CoreLogic uses a weighted average for prices (December weighted the most) – but that is still quite a lag.
Both of those indexes will bottom seasonally around March, and then start increasing again.
There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).
Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties – especially some states with a judicial foreclosure process – will probably see further price declines.
The average cost-per-sf for detached sales in SD County rose 9% in 2010. I think it’ll increase another 9% in 2011, fueled by the red-hot lower price ranges. But sales will struggle, possibly 20% fewer sales overall, because buyers will want to hold out for the best. The bar is rising on what buyers are willing to tolerate, but they’ll spend the money on a top-quality house.
I’m not sure where I got the 9% YOY increase in 2010, because looking at the detached MLS stats below, the average cost-per-sf change between 2009 and 2010 was only +7.4%.
The year-over-year change in the average cost-per-sf between 2010 and 2011 went DOWN 4.5%, not up. Maybe that had something to do with the 2011 sales actually increasing slightly over 2010.
SD County Det.
2007
2008
2009
2010
2011
YOY %chg
Total listings, year
46,056
42,567
34,241
37,226
35,737
-4.0%
Total closings, year
15,713
19,103
22,577
21,036
21,082
0
Avg. $$-per-sf
$351/sf
$263/sf
$229/sf
$246/sf
$235/sf
-4.5%
SP:LP
96%
97%
99%
98%
97%
0
Avg. DOM
66
66
61
66
80
+21.2%
Our focus is on selling detached homes between La Jolla and Carlsbad.
How did North San Diego County Coastal do?
NSDCC Det.
2007
2008
2009
2010
2011
YOY %chg
Total listings, year
5,406
5,289
5,045
5,286
5,205
-1.5%
Total closings, year
2,479
2,037
2,222
2,460
2,525
+2.6%
Avg. $$-per-sf
$468/sf
$438/sf
$393/sf
$380/sf
$376/sf
-1.1%
SP:LP
95%
94%
95%
96%
95%
0
Avg. DOM
67
70
76
73
81
+11.0%
Changes of 1% or 2% can be considered noise, and they reflect that the NSDCC market has been flat for the last two years. Sales are holding their own, thanks to the low rates and just enough decent listings.
What is JtR’s prediction for 2012 around NSDCC?
There were 188 REO listings and 275 short-sales closed in 2011, or about 18% of the overall sales. Short-sellers should abound, due to the expiration of the tax exemption on debt relief at the end of the year, because if it is extended it probably won’t happen until the last minute. There will probably be commotion around the election and politics, but it won’t stop buyers from grabbing the deals.
My 2012 guess: NSDCC detached sales +10%, and their avg. cost-per-sf drops 5% from 2011.
It must have been a slow week for real estate news – from thelatimes.com:
Could today’s seductive conditions in the housing market — severely marked-down prices, record low interest rates and hundreds of thousands of foreclosures waiting to be resold — be breeding new generations of the very practices that led to the crash?
In an ironic twist, there are signs that the wreckage left over from the housing bust may be reigniting dubious real estate schemes and fraud. According to researchers:
• Property flippers are back in action in places like south Florida and Las Vegas, where condominium prices crashed but are now appreciating again in some areas.
• So-called floppers are defrauding banks by hijacking short sales at prices below what legitimate buyers are willing to pay. In these schemes, realty agents obtain fraudulent appraisals to persuade banks to sell houses at below-market prices to investor groups. The investors then flip the houses at fair market prices to ordinary home buyers and split the quick profits.
• Creative “credit enhancement” companies are “renting” investors the bank account balances they need to demonstrate to lenders that they have the financial wherewithal to qualify for a mortgage. The accounts are real, but they don’t belong to the loan applicants who claim them. Account names are assigned to applicants — who pay for the service — but they are never allowed access to the money. When mortgage underwriters check to verify the deposits, which are in reality fraudulent sub-accounts, they are told the money is in the name of the loan applicant.
• Investors are hoodwinking lenders into giving them low down payments and rock-bottom interest rates by lying about their intentions to occupy the property they plan to buy as a principal residence. Some investors consider such dissembling nothing more than a fib, but in reality it’s bank fraud. Researchers at the Federal Reserve Bank of New York have documented that widespread falsehoods by investors about occupancy played a major but previously unrecognized role in the real estate bust.
This guy has intriguing evidence, but his reasons are just ivory-tower guesses. Hat tip to DB for sending this along frombusinessinsider.com:
Barclays analyst Stephen Kim is becoming increasingly convinced that the housing market is near a bottom and that it will rebound in 2012.
He points to one key trend, which he is surprised is getting so little attention.
“In the absence of a government homebuyer incentive, prices for non-distressed home sales have stabilized for almost a year! In our opinion, this is the most important trend in the housing industry right now, and we are amazed at how little attention it has been getting from the media and the Street. Meanwhile, we point out that this stability on the part of non-distressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.“
Kim continues:
We are particularly intrigued by the inability of distressed sales to drag down non-distressed pricing. This separation between the two types of housing is critical for several reasons:
– The data shows that a distressed home is increasingly being seen as a poor substitute for a non-distressed home.
– This bifurcation between distressed and non-distressed homes will only widen with the passage of time.
– With buyers now discerning that distressed homes cannot be compared to non-distressed homes, concerns about the workout of foreclosures may be overblown.
Kim believes that stability in these prices in the absence of government subsidies is strong signal that home buyer sentiment is improving. Furthermore, he notes that stabilization in relevant economic indicators such as unemployment and consumer sentiment only strengthens his argument.
