New Home Sales at Record Low

Housing sales, housing starts, and mortgage refinancings have all collapsed along with the expiration of home-buyer tax credits.

Yesterday the Census Bureau report on New Residential Sales in May 2010 showed sales of new single-family houses in May 2010 collapsed to a seasonally adjusted annual rate of 300,000.

The foregoing is taken from Thursday’s Breakfast With Dave.

New home sales dropped a record 33% in May, to a record low of 300,000 units at an annual rate. This breaks the prior all-time low of 341,000 set back in April 2009 when the economy was knee deep (more like six feet under) in recession.

There must have been a wave of cancellations too because April was revised down to 446,000 from 504,000 and March to 389,000 from 439,000. The only other time when new home sales made a new low 11 months after the end of a recession was during the double dip of the early 1980s – assuming that the pundits are correct on this assessment of when the economy bottomed out.

The inventory backlog, which had taken a dive in April as the tax credits were about to expire, soared from 5.8 months to an 11-month high of 8.5 months. And, this excess supply is exerting more downward pressure on pricing – the median price of a new home fell 1% MoM in May to $200,900 and is now down nearly 10% for the year (was $222,600 in December). Home prices have not been this low since December 2003 and are light years away from the $257,000 peak established in mid-2006.

Despite all the stimulus aimed at the housing market, it took builders a record median 14.2 months to find a buyer for a completed home in May.

People don’t want to buy an asset they see will depreciate in value. And people don’t want to pursue the dream of homeownership if it means taking out a mortgage – the scars from the credit collapse are obviously lingering if not accelerating.

Housing’s Upside Down V-Shaped Recovery

Median Months To Sell New Single-Family Homes

Housing Tax Credits Added To Housing Problems, but how???

The reality is there was an oversupply of houses, there still is a huge oversupply of houses, and it was outright idiotic to stimulate more homebuilding in such conditions.

I’ve personally litigated against several banks who simply place these upside repossessed  homes that they can’t sell on their toxic asset sheets.  They sit vacant, boarded up, and rather than lower the price to meet demand – the banks have the luxury of billions of dollars in free bailout money to offset the books from losses.  Some banks I’ve worked with can’t even sell distressed property at a reduced price or they risk losing their federal funding.  It’s important to understand what’s really going on and to see the big picture if you are considering filing bankruptcy or facing foreclosure.  When presented with the facts, many people feel differently about filing bankruptcy or defending their home from foreclosure.  Call now to discuss how we can legally help you (619) 794 0460.

The practical effect of tax breaks for new homes and stimulus money for banks was that demand was pushed forward. We are still stuck with huge inventory and fewer buyers. There is also an enormous amount shadow inventory of bank owned real estate and more foreclosures in the pipeline.

Housing Signals Double-Dip

Rosenberg notes “The only other time when new home sales made a new low 11 months after the end of a recession was during the double dip of the early 1980s”

Housing and the Yield Curve both signal a double-dip.

Yield Curve as of 2010-06-22

The above chart shows Weekly Closing Yields.

The chart does not reflect inflation, inflation expectations, reflation, or an improving economy.

It does reflect what one would see after a reflation effort that has failed. Mortgage rates at lowest point since at least 1971

The economy also remains under pressure from high unemployment. And many people don’t qualify under tightened lending rules.

Many Americans owe more on their mortgages than their homes are worth — often called “under water” — and can’t refinance.

The Obama administration has launched programs to help borrowers refinance if they owe up to 25 percent more than their home’s value and have loans owned or guaranteed by mortgage giants Freddie Mac or Fannie Mae.

The California state legislature has placed an additional 90 day hold on foreclosures if debtors can demonstrate an income to mortgage payment ratio of 38% or less.  Civil Code 2924 has been expanded and the Obama Protection of Tenants in Foreclosure Act impose additional due diligence requirements on foreclosing lenders.  Don’t let them take your home without a fight.  Call now to see how Safer Law can help you 619 794 0460.

About 291,000 homeowners have participated as of March. Yet that’s a small fraction of the nearly 15 million homeowners who are under water, according to Moody’s Economy.com, and cannot refinance. In hard-hit areas in Nevada and Florida, for example, home prices have fallen 50 percent or more from their highs. Record-low rates can’t rescue those homeowners. (See 6-21-10 blog)

Is a housing shortage coming?

CNNMoney is asking the ridiculous question Is a housing shortage coming?

As the nation struggles to shrug off the worst housing crash since the Great Depression, it may be hard to believe a housing shortage could be on its way.

The nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, an annualized rate and less than half the long-term run rate needed to meet the nation’s natural population growth.

“It is ironic, but there is a growing consensus that there may be a new housing shortage coming,” said James Gaines, a real estate economist with Texas A&M.

So far, the shortfall has been masked by a weak economy that has put a damper on home buying. Once the job market rebounds, however, people will look to have their own homes again. This pent-up demand could get unleashed on unprepared markets, causing shortages and rising local prices.

Growing Consensus a Housing Shortage is Coming!?!

That is one of the most short sited and absurd claims I have ever heard from CNN news. There is enough housing inventory to last for years if you factor in shadow inventory (underwater repossessed homes).
Housing Fundamentals

• Boomers looking to downsize will add to housing supply.
• Foreclosures will continue to add to supply for several more years.
• Shadow housing inventory is massive (far larger than we know)
• Global growth is slowing. This will affect exports and jobs.
• Bank balance sheets are tremendously weak. Don’t expect lending to pick up or businesses to go on hiring sprees anytime soon.
• Unemployment is 10% and going to stay high for a decade.
• The economy is poised for a double-dip recession, assuming you believe the economy exited the last recession.
• Kids are graduating college hundreds of thousands of dollars in debt with no way to pay it back. They cannot afford houses and are delaying family formation.
• Nearly anyone who wants a house and can afford a house already has a house.
• Debt deflation will be in play for a decade.
• Attitudes towards housing have changed. A few years ago people thought of housing as an ATM as well as a retirement plan. Most people now realize a house is a place to live and a mortgage is a liability not an asset.
• Attitudes toward debt have changed. Kids have seen their parents argue and worry about mortgage payments, credit card payments, and jobs. They will not want to get in trouble like their parents did.
• 15 million homeowners are underwater on their mortgage according to Moody’s Economy.com. Those 15 million homeowners are literally trapped in their home unable to sell and unable to move.

Even if by some miracle housing bottoms in the next year or so, the headwinds mentioned above will put a damper on home price appreciation for a decade.

The indicators are there and the facts speak for themselves.  If you’ve been burned by the market and the government’s bailing out of banks and lenders then call us.  We may be able to help you.  Do not ignore the problem or let go without a just fight.  619 794 0460