Wednesday, December 28, 2011

Housing Gloom

From the advisorone website this discussion of housing numbers by Gil Weinreich reporting home sales figures have been inflated to make the housing market look better than it is. While this well reported story is interesting, what it highlights is the unappealing truth that statistics issued by corporate American and political America are composed mostly of lies. Unfortunately we have seen the seasonal high retial sales numbers "adjusted down" while lower unemployment numbers seem to reflect not an improving economy but statistics altered to suit the needs of the people in charge. Things are not getting better and the new home purchase program due to start in January won't help. There aren't any banks secure enough to make loans, there are too many homes empty and in foreclosure and there aren't any jobs. So now what?

The health of the housing market has come under fresh doubts after the National Association of Realtors released substantially revised figures showing 3 million fewer homes than previously thought were sold between 2007 and 2010.

The good news is that NAR’s revised data show that inventory of unsold homes has dropped to a level not seen since 2005; a smaller backlog of homes is generally viewed as a precondition for a healthy clearing market.

Indeed, much of the early analysis in the media seems to suggest the housing market is turning a corner, that the bad news belongs to the past while recent positive home sales and housing starts data, together with low mortgage rates, foretell recovery.

Richard Green, director of the USC Lusk Center for Real Estate, in an interview with AdvisorOne, offered a more sober view of current real estate trends, saying he was “neutral to very cautiously optimistic” about the housing market.

The NAR’s double counting, he said, affects both the numerator and the denominator, meaning that fewer homeowners than previously thought were willing or able to sell their homes in the past few years. “You’re looking at a 14% downward revision in sales. That means we’re probably 14% further away from being through this,” Green, (left), says.

One positive for the real estate market’s revival prospects, at least in theory, are today’s low mortgage rates. A survey of rates conducted by Freddie Mac, and released Thursday, shows mortgage rates reached their all-time low this week. But, Green says, “the effectiveness of low rates is being blunted by how difficult it is to qualify for them.”

In related news, the HousingIntelligencePro newsletter reports that, despite record low rates, 38% of home purchases this year were paid in cash. That is exactly twice the level of cash home purchases in the healthier housing market of 2006. Green was unsurprised by this statistic, not only because of the difficulty of obtaining financing for a mortgage, but because of the search for dividends in today’s low-yield market environment.

“If you have cash, you can buy houses at a pretty substantial discount,” Green says. “There are a lot of people who are investing and renting these places out. If you buy a house in Bakersfield, [Calif., for example], you can get a 7% or 8% dividend. By not having debt service, you’re in a very safe place.” Green says cash buyers can typically get a 5% to 10% discount off the purchase price since sellers don’t risk the sale falling through because a loan is denied.

Looking ahead, Green says one possible reason for cautious optimism in the housing market is the government’s new Home Affordable Refinance Program. While previous HARP programs have failed, new rules changes that go into effect Jan. 1 should make it a lot easier to refinance Fannie Mae and Freddie Mac loans, he says.


Anonymous said...

What now? Prices will continue to fall on a country wide basis. Certain local markets will stabilize before others but the broad majority will bottom in 2015. From there prices will drag along the bottom for 3-5 years.

Conchscooter said...

Its pretty ugly all round even though some areas are better than others (Key West included).