The Federal Reserve’s announcement this past week that it would begin a ten-month “Twist” (see prior article) in an effort to boost the housing market and the economy highlights the current condition of housing in the United States. A report on August new home sales is due to be released on Monday, September 26th. Needless to say, it is being eagerly awaited by housing market professionals, bankers, investors, and politicians alike.
The most recent prior new home sales report ( for July) showed that sales declined (by 1%) for the third month in a row. In addition, home prices declined 5.9% in the second quarter and there was another rise in mortgage delinquencies.
However, proving the point that economists and statisticians can almost always find some good news in report data – a number of experts pointed to some hopeful signs:
- Longer-term delinquencies (over 90 days or more past due) are at their lowest point since early 2009;
- It is evident that many banks/lenders are working with home owners to “short sell” distressed properties instead of move to foreclosure (this choice is better than foreclosure for both the borrower and the lender);
- As hinted at in 2), “distressed” homeowners are becoming more resourceful in managing their situation, and not quite so quick to just give up and abandon the home (they are finding resources and guidance which enables them to keep working through it);
- Because construction financing is so hard to come by for builders, and because the risk/reward of building is currently so marginal, the supply of new homes has plummeted – which experts consider a “plus” in more quickly leading to the development of a renewed “balance” between supply and demand.
These positives have led many experts to offer the opinion that we have reached (or are close to) a “floor” in residential real estate in those markets that have been most severely depressed. One of these experts is real estate market consultant, Mark Boud, of Real Estate Economics (Irvine, Ca.). Boud’s firm produces asset valuation and market reports for developments, as well as feasibility studies. Boud points out that the huge volume of foreclosure homes and “short sale” homes needs to be absorbed into the market before any sort of healthy recovery can begin: “This weakness in new construction corrects for excess supply of other housing, which has put downward pressure on prices.” http://www.advisorone.com/2011/08/25/real-estate-rebound-weak-housing-data-hides-seeds
Boud sees the greatest chances of near-term recovery in these areas:
- Phoenix: “One of the most undervalued markets is Phoenix, which is significantly undervalued and is experiencing job growth. In terms of rental support and economic growth, it’s a good long-term bet.
- Seattle and Los Angeles: places like these are “supply-restricted” and tend to snap back fairly quickly if they have a strong economic base.
- Las Vegas: this is an example of one of the most severely distressed markets. Boud reports that a majority of homes there are now purchased with cash. “What we are seeing is a lot of investors, those who are relatively wealthy, purchasing homes at very low prices and putting renters in them,” reports Boud. “The rental rate is higher than the mortgage rate, so investors can be in the black right away.”
In light of all of this, the attention of millions of observers will be focused on the contents of the report of new home sales this Monday, September 26, at 9:00 AM CDT.