Don’t Believe the Optimists

There has been a flurry of articles in the past few days about vacant housing inventory “slightly” declining, new housings starts declining, and a slow down in the speed-up of the decline in housing prices (a convoluted way of saying we’re still going to hell in a hand basket, just not getting there faster) – don’t believe them. There are opportunities on the micro level, but the macro level still stinks.

Manhattan Rental Market Report: October 2008 – The Real Estate Group of New York – via Curbed reports year-over-year declines in most sub-markets/market segments in excess of seasonal adjustments.

Click here for the full report with statistics by neighborhood and unit type

Case-Schiller October Index – Paper Economy – 28 October 08

For a well-done, albeit depressing review of the October Case-Schiller Index:

…continues to reflect the extraordinary weakness seen in the nation’s housing markets with ALL of the 20 metro areas tracked reporting year-over-year declines and ALL metro areas showing substantial declines from their respective peaks…a notable re-acceleration of the price slide…important to keep in mind that today’s release was compiled using home sales data primarily from July and August, well in advance of the historic levels of financial collapse seen in September and October…In all likelihood, today’s report sits on the threshold of a new and even more momentous wave of home price declines as the continued economic crisis and dramatically accelerating unemployment work to both crush consumer sentiment and force panicked mortgage lenders to continue to tighten their lending standards…

The 10-city composite index declined a record 17.72% as compared to August 2007 far surpassing the all prior year-over-year decline records firmly placing the current decline in uncharted territory in terms of relative intensity.

Topping the list of regional peak decliners were Phoenix at -36.32%, Las Vegas at -35.89%, Miami at -34.67%, San Diego at -32.80%, Los Angeles at -30.94%, San Francisco at -30.66%, Detroit at -27.24%, Tampa at -26.79%, Washington DC at -22.39%, Minneapolis at -17.05%, Chicago at -11.31%, Boston at -10.80% and New York at -10.65%.

Additionally, both of the broad composite indices showed significant declines slumping -21.96% for the 10-city national index and 20.31% for the 20-city national index on a peak comparison basis.

Click here for the full article

A well done article pointing out that there are opportunities for knowledgeable buyers who understand the local sub-markets (geographic, amenity, and price point) but I think he underestimates the macro problem of houses in the process of foreclosure that won’t hit the market until next year.

Bargain Hunters Help Shrink Housing Glut – The Wall Street Journal - James R. Hagerty – 28 October 08

Despite Small Inventory Drop, Prices Continue to Decline; The Threat of Unlisted Homes

Lower home prices are luring some buyers back into the U.S. housing market, but foreclosures and a weakening economy are likely to keep downward pressure on prices for at least another year…A quarterly Wall Street Journal survey of housing data in 28 major metro areas shows that the glut of unsold homes listed for sale is shrinking in most of them. In many cases, sales have been stimulated by investors who are grabbing what they see as bargains on homes that can be turned into rentals. Metro areas with the biggest drops in for-sale signs include Sacramento and Orange County in California and the Virginia suburbs of Washington, D.C.

The recent headlines give a mixed picture. On Monday, the Census Bureau reported that new home sales in September were at a seasonally adjusted annual rate of 464,000 units, down 33% from September 2007. The median sales price for new homes in September was $218,400, down 9% from a year earlier. Last week, the National Association of Realtors said sales of previously occupied homes in September edged up 1.4% from the depressed year-earlier level, the first such rise since November 2005, largely reflecting sales of foreclosed homes.

Housing analysts caution that many homes that aren’t currently listed for sale may hit the market in the next year or two. This looming supply includes pending foreclosures and homes temporarily taken off the market while their owners await stronger demand…

“Now we’re adding a second leg down [in housing], which is the job losses,” says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley…

Despite all the gloom, some people believe it isn’t too early to pick up bargains. One key, they say, is a deep understanding of the local demand for rental housing…

Barclays Capital estimates that banks and loan investors owned 826,200 foreclosed homes as of Sept. 1, up from 343,500 a year earlier. Barclays forecasts that this inventory will peak at around 1.3 million homes in mid-2010.

Ivy Zelman, chief executive of housing-research firm Zelman & Associates, says far more vacant homes are being held off the market than usual. In the second quarter, vacant homes that weren’t listed for sale totaled about 6.5 million, she estimates, using Census Bureau data. That’s about one million more than the typical level during the first half of this decade. If a million of those vacant homes were listed for sale, listings would rise about 23% from the current level. Some of these empty homes are in the foreclosure process, Ms. Zelman says…

Ms. Chen expects Florida’s recovery to lag behind that of the nation as a whole, partly because a backlog of foreclosures in courts there will take time to clear. In the Miami area, nearly 18% of home mortgages are overdue or in foreclosure, compared with a national average of 7%, according to Economy.com.

The glut of homes in South Florida is concentrated on the lower end of the market, says Ron Shuffield, president of Esslinger-Wooten-Maxwell Inc., a big real-estate brokerage there. Homes priced at less than $300,000 account for about 62% of the single-family houses and condos listed for sale in Miami-Dade and Broward counties, up from 33% in April 2005…

Click here for the full article including an interesting chart by metro area

New Home Sales: Annual and Through September – CalculatedRisk – 27 October 08

New home sales in 2008 might be at the lowest level since 1982. However adjusted for changes in owner occupied units, the current year is the worst on record…

If we use a ratio of owner occupied units to compare periods,…By this measure, 2008 is the worst year for new home sales since the Census Bureau started tracking new home sales (starting in 1963).

Click here for full article and graph

Past and Future Wave of Mortgage Resets (Credit Suisse via The Big Picture)