American home resale sales jump 9.4%
Home resales in September clocked the largest monthly increase in 26 years as buyers scrambled to complete their purchases before a tax credit for first-time owners expires. Sales jumped 9.4 per cent to a seasonally adjusted annual rate of 5.57 million last month, from a downwardly revised pace of 5.1 million in August, the National Association of Realtors said Friday.
That pace was the strongest in two years and beat Wall Street forecasts. Sales had been expected to rise to an annual rate of 5.35 million, according to economists surveyed by Thomson Reuters.
"There's a miniboom going on in the housing market," said Thomas Popik, who conducts a monthly survey of real estate agents for Campbell Communications.
Nationwide sales are up nearly 24 per cent from their bottom in January, but are still down 23 per cent from four years ago.
But prices continued to drag with foreclosures and short sales, where the mortgage exceeds the sales price. The median price last month was $174,900 (U.S.), down almost 9 per cent from $191,200 a year earlier, and slightly lower than August's median of $177,300.
The inventory of unsold homes on the market fell about 7 per cent to 3.63 million. That's less than an eight-month supply at the current sales pace, and the lowest level since March 2007.
Sales rose especially in the west, where they grew 13 per cent from a month earlier. Foreclosure sales are booming in cities like Los Angeles, San Diego and Las Vegas.
First-time homebuyers and investors are snapping up those homes and taking advantage of low mortgage rates. They can also receive a tax credit of 10 per cent of the sales price, up to $8,000, if the sale is completed by the end of November.
The credit is so important to some buyers they are adding a clause to their contracts, allowing them to back out if the sale doesn't close by Nov. 30. But, economists note that cheap foreclosures and mortgage rates are also adding to the boom.
"We think the housing market has touched bottom and it is now only a matter of time until home prices stabilize – something that we anticipate to occur in late 2010," wrote Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Prices could fall further because rising unemployment leads to more foreclosures. The jobless rate, currently at 9.8 per cent, is expected to rise as high as 10.5 per cent next year, causing more people to fall behind on their mortgages.
"There's more supply that's going to come into the marketplace," said Stan Humphries, chief economist at real estate website Zillow.com. "That additional supply will outpace demand."
With concerns about the housing market still prominent, Congress is considering several proposals to extend the tax credit. Senators Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., want to extend it through June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.
Realtors and homebuilders are loudly in favour, arguing that the tax credit is crucial to get the housing market back on its feet.
"We are not there in terms of removing the consumer fear factor," said Lawrence Yun, the National Association of Realtors' chief economist.
One potential roadblock to an extension also emerged this week. There are concerns that some of the 1.5 million applications for the tax credit are fraudulent.
Source: Associated Press
Global Real Estate Trends
Recovery Is Underway, According to Scotia Economics
Global real estate markets are showing tentative but growing signs of stabilization, according to the Global Real Estate Trends report released today by Scotia Economics. "Real home prices increased in a number of major developed economies in the second quarter of 2009, including Canada, Australia and the United States," said Adrienne Warren, Senior Economist, Scotia Economics. "Prices were still falling in many other markets, including the U.K., France and Spain, but generally at a slowing rate. For the most part, however, real home prices are still lower relative to a year ago."
Scotia Economics believes the improving sentiment in global residential real estate markets is sustainable. According to the report, the firming in pricing is evidence of growing confidence in the sustainability of the fledgling global economic recovery. Historically low borrowing costs, increased affordability, and home-buyer tax incentives in a number of countries are underpinning a modest revival in housing demand. Indeed, signs of a bottoming in home prices are likely now bringing some fence-sitters off the sidelines.
"Financial market conditions, including rebounding global equity markets and an easing in credit constraints, are also becoming more supportive," stated Ms. Warren. "A significant amount of worldwide excess production capacity will keep a lid on inflationary pressures for some time to come, allowing monetary authorities to keep short-term interest rates at historically low levels and very supportive of housing market activity.
"Nevertheless, the rebound in housing activity will be constrained in part by a generally more cautious borrow and spend mentality, with weakened household finances leading to a renewed focus on reducing debt and rebuilding savings," continued Ms. Warren. "Labour market conditions are beginning to stabilize, but unemployment rates remain high and are expected to be slow to decline. A more cautious lending environment is expected to persist as financial institutions around the world recapitalize their balance sheets."
There remain excesses is the global housing market itself that point to an extended period of more subdued activity. Many countries are burdened with an excess supply of unsold housing inventory after years of overbuilding. Despite recent price declines, housing valuation measures such as price-to-rent and price-to-income ratios also suggest some continued overvaluation in many markets.
Yet, even a stabilization in housing prices, demand and construction would be highly supportive of a broader economic recovery, particularly as the near-term fuel provided by government stimulus spending and inventory rebuilding begins to fade.
"Homeownership is a crucial sector of national economies and an important source of wealth for many households, influencing spending, saving and borrowing decisions," said Ms. Warren. "It also has significant spillover to other domestic industries, including retail sales, finance and insurance, and a range of professional and household services."
Canadian Focus - Building Momentum
While not as robust as the revival in resale housing activity, new home construction in Canada has notably turned up. On a trend basis, housing starts are running just over 140,000 annualized units, up from a spring low of around 120,000 units. Most regions are showing gains, with the largest improvement in Canada's four western-most provinces.
"Builders are responding to tight resale market conditions, which tend to spur relative demand for new homes," said Ms. Warren.
Despite the modest rise in new construction, the inventory of unsold new homes, which has been trending higher since 2003, appears to have peaked, having edged down for a third consecutive month in August. The current overhang is a bit higher than its long-term trend, though still well below the peaks reached during the housing bust of the early 1990s.
"We expect resale markets will become better balanced in 2010 as pent-up demand from the depressed levels of last fall and winter wanes and as the number of listings increase, removing some of the recent incentive to add more new housing stock, and cooling price increases in both the new and resale market," concluded Ms. Warren.
US Housing Market: Good & Bad
Home price declines are stabilizing, but delinquent mortgages and foreclosures are getting worse despite efforts to modify unaffordable loans.
The rate of decline in U.S. home prices has slowed, but the foreclosure problem is getting worse despite strengthened efforts to modify unaffordable loans, so any recovery in the housing market is still a ways off. That's the upshot from a pair of reports released on June 30.
In April the seasonally adjusted S&P/Case-Shiller 20-City Composite Home Price Index fell by just 0.9% from the month before, making it the smallest monthly decline since August 2007. That's according to a BusinessWeek calculation using data from Standard & Poor's (MHP). The index in April fell 18.1% from a year earlier, down from an 18.7% year-over-year decline in March, as reported in the S&P press release. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos.) The monthly changes ranged widely from declines of 3.7% in Las Vegas, 2.8% in Phoenix, and 1.9% in Miami, to increases of 0.7% each in Dallas and Denver.
Meanwhile, a government report contained conflicting signals on the damage being done by foreclosures. The bad part is that foreclosures are eating upward into prime mortgages—the safest kind. Some 2.9% of prime loans were 60 or more days past due in the first quarter, nearly triple the rate of 1.1% in the year-earlier quarter, the Office of the Comptroller of the Currency and the Office of Thrift Supervision announced jointly. Comptroller John Dugan said in a statement that he was "very concerned about the rise in delinquent mortgages and foreclosure actions."
Loan Modifications Increase Sharply
On the other hand, Dugan said he is hopeful that the Obama Administration's efforts to stem foreclosures will be successful, pointing to evidence that loan servicers are working harder to modify unaffordable loans in a way that reduces payments. There was a 55% increase between the fourth quarter of last year and the first quarter of this year in the number of loan modifications. What's more, 29% of them reduced monthly payments by one-fifth or more, up from only 19% that did so in the fourth quarter. In an interview, National Community Reinvestment Coalition CEO John Taylor hailed the progress but said the government should buy troubled loans and order servicers to modify their terms in order to make a real dent in the foreclosure problem. "It can't be this light-touch modification," Taylor says.
The bottom line is that the fall in home prices to date has been big enough that the market is no longer significantly overvalued by many measures. However, prices are still under pressure because of the recession, tight bank lending standards, and the overhang of properties that are in foreclosure or likely to enter foreclosure in coming months.
Experts differed on what to make of the housing reports. Patrick Newport, an economist with IHS Global Insight, wrote: "House prices are no longer in a free fall, as they were late last year. They are still falling at a steady clip, however, and will fall further, since foreclosures are still rising. Indeed, all evidence indicates that the foreclosure problem is getting worse."
In a Bloomberg Television interview, Yale University's Robert Shiller, one of the fathers of the S&P/Case-Shiller index, said, "My guess would be that home prices are going to level off—they're not going to keep falling." But he added that it's hard to predict a speculative market, and said, "I am not optimistic that we're going to see any sharp rebound."
The big fall in prices has begun to attract investors, who figure they can rent houses for a profit even after a 20% or 25% down payment, says Brad Geisen, CEO of Foreclosure.com of Boca Raton, Fla., which supplies foreclosure data. These investors are playing a safer game than those earlier in the decade because they make money every month as long as rents stay where they are. In contrast, investors in the 2005-2007 period couldn't make enough money on rents to pay the mortgage, but were betting on price appreciation to make the investments worthwhile, Geisen says.
US house prices 'see record fall'
US house prices fell by a record 19% in January compared with a year earlier, according to a closely-watched index.
The Standard & Poor's/Case-Shiller Home Price index records prices in 20 of the largest cities in the US. The index also showed a month-on-month fall as prices fell 2.8% in January compared with December. Earlier this month, figures showed home construction in February rose by a quarter year-on-year, raising hopes the US housing market may be bottoming out.
"Home prices, which peaked in mid-2006, continued their decline in 2009," said David Blitzer at S&P. "There are very few bright spots. Most of the nation appears to remain on a downward path, with all 20 metro areas reporting annual declines," he explained.
Jim Awad at Zephyr Management said: "I think what this says is that the rally in the [stock] markets is based on a hope that the economy is bottoming and that the housing market is bottoming.
"This data is part of the reality check we're going to get over the coming month."
From their peak in the second quarter of 2006, house prices have now fallen by 29.2%, according to the S&P/Case-Shiller index.
The 19% fall in January is the biggest drop since the index began in 1988.
Prices in Phoenix fell the most (35%), closely followed by Las Vegas (32.5%) and San Francisco (32.4%).
The smallest fall was in Dallas, where house prices fell by 4.9%.
U.S. home prices continue decline
American single family home prices ended 2008 with record declines, continuing that trend for a second straight year, according to a leading index released today. Standard & Poors/Case-Shiller U.S. national home price index fell 18% in the fourth quarter of 2008 compared to the same period a year ago, the largest decline in the index's 21-year history.
The sharpest declines from the previous year were in Phoenix (down 34%), Las Vegas (down 33%), San Francisco (down 31%), Miami (down 29%) and Los Angeles, which includes Orange County, (down 26%).
Las Vegas, Phoenix, Miami and San Francisco home prices were down more than 40% from their market peaks, which occurred at different times. Los Angeles-area home prices ended 2008 down 37% from their late 2006 peak.
"Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines," said David M. Blitzer, chairman of the index committee at Standard & Poors.
U.S. homeowners lose $3.3 Trillion
American homeowners collectively saw $3.3 trillion erased from the value of their real estate in 2008. What’s all the more stunning is that $1.4 trillion, 42 percent of the annual 2008 total, was lost in the fourth quarter alone, due largely to the fact that more markets fell into negative territory as the year progressed and those already in negative territory just got deeper.
These are just two of the literally thousands of data points found in Zillow’s Q4 2008 Real Estate Market Reports released yesterday.
U.S. home prices down 18%
Home values in the 20 largest metropolitan areas in the U.S. dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released yesterday. The price of single-family homes fell 18 per cent in October from a year earlier, according to the closely watched Standard & Poor's/Case Shiller Housing Index.
All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point.
"October was clearly the free-fall month," said David Blitzer, chair of the index committee at Standard & Poor's. "Everything was going against us in October."
Home prices have fallen every month since January 2007, their slide accelerating as troubles in the housing market infected the broader economy and brought down financial firms. Prices are falling at their fastest pace on record, a sign the U.S. housing market is a long way from recovery.
"It is unlikely that we are anywhere near a bottom in nationwide home prices," Joshua Shapiro, chief U.S. economist at research firm MFR, wrote in a note.
The 10-city index dropped 19.1 per cent in October, its largest decline in its 21-year history, and the new numbers show the cities that hosted the greatest excesses of the housing boom are suffering the deepest drops.
Prices in Las Vegas and Phoenix, Ariz., where developers built subdivisions stretching into the desert, fell by nearly a third in October. Home prices fell 31 per cent in San Francisco and 29 per cent in Miami. Prices in New York declined 7.5 per cent in October over the same month a year ago.
Fourteen of the 20 cities in the Case-Shiller survey posted double-digit declines for the year.
The relative winner was Dallas, which had the smallest yearly decline of 3 per cent. The value of a single-family house in Detroit, which has been pummelled by closing plants and the implosion of the auto industry, was less in October than it was in October 1998.
The Case-Shiller numbers were the latest round of bleak news for the U.S. housing sector, which is at the centre of the country's broader economic troubles. Foreclosures, bad loans and collapsing housing prices contributed to the financial crisis earlier this year, and now the widening recession is dragging housing down even more.
Last week, the U.S. National Association of Realtors reported that previously owned homes, which dominate the market, suffered their sharpest drop in more than 40 years. Home values tumbled 13 per cent in November from a year earlier, the industry group reported.
Housing is likely to deteriorate further in 2009 as the jobs picture continues to weaken. The U.S. unemployment rate is now at 6.7 per cent, its highest point in a decade, and economists predict it will rise to 8 or 10 per cent next year.
"People who think they're going to lose their job don't buy a home," said Steven Ricchiuto, chief economist at Mizuho Securities.
Source: The New York Times
U.S. real estate market update
American median resale home price falls 11.3%.in October
The median price of U.S. resale homes dropped 11.3 percent year-over-year in October — the largest ever drop since the National Association of Realtors began tracking the statistic in 1968. In the past four months the median price of resale homes has dropped 14.8 percent — from $215,100 in June to $183,300 in October 2008, NAR reported.
The downward trend was driven largely by sharp price declines among single-family homes in Western states.
The single-family resale median price plunged 26.7 percent over-year in October in the West, falling from $322,900 in October 2007 to $236,700 in October 2008, NAR reported.
Also, the single-family median price dropped 4.7 percent in the South and 7.2 percent in the Northeast and Midwest from October 2007 to October 2008, according to the report.
Resale condo and co-op home prices, meanwhile, dropped 24.5 percent in the West, 16.8 percent in the South, 4.6 percent in the Midwest and 4.4 percent in the Northeast in October 2008 compared to October 2007.
Total sales of U.S. resale homes -- including single-family homes, condo and co-ops -- dropped 1.6 percent in October compared to the same month last year, to a seasonally adjusted annual rate of 4.98 million. That represents a 3.1 percent drop from September 2008.
The sales rate is a projection of a monthly sales total over a 12-month period, adjusted to account for typical seasonal fluctuations in sales activity.
Where did the money go?
All the money lost in the stock market and the housing crash never really existed, economist says
Trillions in stock market value – gone. Trillions in retirement savings – gone. A chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll – gone, gone, gone.
Whether you're a stock broker or Joe Six-pack, if you have a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street or Bay Street? Some oil baron in Saudi Arabia? Or China?
Or is it just – gone?
If you're looking to track down your missing money – figure out who has it now, maybe ask to have it back – you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy."
He says the price of a stock has never been the same thing as money – it's simply the "best guess" of what the stock is worth.
Shiller uses the example of an appraiser who values a house at $350,000 (U.S.), a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."
Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn't a wad of bills in your wallet, even if the value of your home isn't something you can redeem at will, surely you can lose potential money – that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.
And if you're a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid's college tuition, this "potential money" is something you're counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your chequing account.
"That's a big mistake," says Dale Jorgenson, an economics professor at Harvard.
There's a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you'd sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.
"You can't enjoy the benefits of your (pension) if it's disappeared," Jorgenson explains.
"If you had it all in financial stocks and they've all gone down by 80 per cent – sorry! That is a permanent loss because those folks aren't coming back. We're going to have a huge shrinkage in the financial sector."
If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen with other investors, confident that you'll get good money for them when you decide to sell.
But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price and a big chunk of that money you thought your investments were worth simply goes away.
And don't blame speculators, Jorgenson says.
"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they're suffering from the consequences."
G7 Finance Ministers Meet
Committed to Maintaining Stability of Financial Markets
The G7 stand ready to take whatever action is needed to maintain the stability of the financial sector, the group announced on Monday morning after a series of meetings over the weekend and into Monday. The G7 said they remained committed to protecting the integrity of the international financial system, and welcomed the extraordinary actions taken by the U.S. government and Federal Reserve to stabilize the financial markets, including a plan to remove illiquid assets from the balance sheets of financial institutions.
The G7 also praised their central banks and their action to provide liquidity to the financial system and the limiting or outright banning of short-selling from financial market regulators. Furthermore, they pledged to continue working together to enhance the international regulatory system.
"We recognize the importance of making regulation more effective and bringing investors back into a liquid and stable marketplace. We remain committed to full and rapid implementation of the Financial Stability Forum (FSF) recommendations to enhance the resilience of the global financial system for the longer term," read the statement. "We look forward to the FSF report this fall on progress made in strengthening prudential supervision and regulation, improving firms' risk management practices, enhancing disclosure and transparency, and strengthening accounting frameworks."
The group also maintained that they were in a state of "heightened close cooperation" and reiterated their commitment to acting individually or together to protect the stability of the financial markets.
Following one of the most chaotic weeks in the history of Wall Street, U.S. Treasury Secretary Henry Paulson on Saturday proposed to Congress a $700 billion bailout plan directed at the heart of the crisis.
The plan, which gives the Secretary broad authority to purchase mortgage-related assets from any U.S. financial institution, will be discussed with congressional authorities over the weekend. The White House hopes the action will find agreement before markets open Monday morning.
The action of purchasing masses of bad debt from numerous institutions is hoped to restore confidence in the financial system by clearing up toxic assets obstructing bank-to-bank lending.