CNBC reported on a study from Clear Capital titled “Clear Capital Reports national Double Dip“:
“Home prices have double dipped nationwide, now lower than their March 2009 trough…a surge in sales of foreclosed properties and a big push by banks to facilitate short sales…[forced] home prices down dramatically. Sales of bank-owned (REO) properties hit 34.5 percent of the market, according to the survey, resulting in a national price drop of 4.9 percent quarterly and 5 percent year-over-year. National home prices have fallen 11.5 percent in the past nine months, a rate not seen since 2008.”
CNBC goes on to indicate that the foreclosure problem has spread beyond just the “bubble” markets that were at the center of the housing crisis:
“…the mid-west is seeing a surge in REOs now, thanks to the plain old recession. 40 percent of the Chicago market is foreclosures, 43 percent in Cleveland and 51 percent in Minneapolis. Home prices fell 8.7 percent in the Mid-West during the past three months compared to the previous quarter.”
It is once again important to note that housing was one of the big targets of the Federal Reserve’s dollar-printing campaign. Given that housing prices have not responded while commodity prices have soared, we must now wonder whether the Fed believes it simply did not print enough, whether there is a longer time lag than anticipated to seeing an impact in housing, and/or worry about the unintended consequences that have yet to be seen. The money had to go somewhere; so far, it has not been into housing.
Many analysts have been predicting a tidal wave of foreclosures in 2010, but so far there is no evidence of it. In fact, in many areas, the foreclosure rate has been declining:
- Miami Herald: Foreclosures in South Florida slowing
- Boston Globe: Pace of foreclosures may be slowing in Mass.
- INDenverTimes: Foreclosure filings fall, sales skyrocket
- San Diego Union Tribune: Foreclosures, defaults fall; analysts urge caution
- Los Angeles Times: Foreclosure activity falls 10% in January
In related news, XHB (the homebuilder’s exchange-traded fund) is at a 5-month high and is just shy of its 52-week high:
Actually, the headline above is fiction. The surprising truth is that foreclosures in Las Vegas and the rest of Nevada have been plunging, in spite of the state’s 13 percent unemployment rate:
Foreclosures filings plummeted in November in Las Vegas and the rest of Nevada, but analysts are unsure if this marks a trend.
California-based RealtyTrac reported that foreclosure filings in Nevada dropped by double digits for the second consecutive month. The 9,295 filings in November were 33 percent fewer than October, in which filings were 26 percent below September.
November’s filings were also 33 percent below November 2008.
“It has been pretty amazing what we have been seeing in Nevada and Las Vegas in terms of the last two months,” said RealtyTrac spokesman Daren Bloomquist. “It was surprising to us. We didn’t expect to see this trend to continue because so many forces are driving foreclosures. It is still up in the air if this is a temporary reprieve or if it has truly turned. We are going to be watching it closely in the next two months.”
By the way, it’s not just Nevada. Nationally, “[f]oreclosure filings fell by 8% in November, making it the fourth consecutive month of improvement in the housing market. There were 306,627 filings last month, according to RealtyTrac, an online marketer of foreclosed properties. That decline follows a 3% drop in October, 4% in September and 1% in August.”
So, housing bears, how’s that “shadow inventory” thesis working out?
A growing chorus of commentators and analysts argue that home prices are due to fall another 10-20 percent or more.
“Until we start seeing a healthy housing market that can stand on its own, without government props, without distressed properties selling 60% off peak levels – that’s how you know the bottom is in,” says blogger Barry Ritholtz, who believes home prices are “not even close” to the bottom.
Henry Blodget, who blogs at Business Insider, agrees wholeheartedly: “The recovery’s momentum is slowing … and it seems likely that house prices will now resume their fall and drop another 10%-15%.”
In the wake of this week’s Case-Shiller report, many headlines were similarly gloomy about the prospects for continued home price appreciation:
- “Housing prices rise, but not for long”
- “Home prices up – but for how long?”
- “Housing data points to rocky rebound”
- “House of cards: Home prices may be headed back down”
- “Home Prices’ Ascent Slows”
- “Seasonal Bump in Case Shiller Home Price Index Abates”
- “Case-Shiller Home Price Index Up For 5th time, But Cracks Showing”
This follows Meredith Whitney’s prediction last month that U.S. home prices will fall another 25 percent. “There is no doubt that home prices will go down dramatically from here, it’s just a question of when,” she told CNBC.
Granted, the housing market may correct a bit from here, especially in the winter (traditionally a slow period for home sales), but I think the odds of a major retrenchment in prices are very low.
First, the Case-Shiller index is up five months in a row–a sign of substantial strength.
Second, pending home sales are up eight months in a row–the longest streak since measurement began in 2001.
Third, the inventory of new homes at the current sales rate was 6.7 months in October, the lowest since December 2006. As Mark Perry observes, that’s “just slightly above the average inventory of 6.13 months, based on new home sales data going back to 1963.” Perry provides the following chart:
Fourth, the number of new housing starts is at a 50-year low. (At least. Records don’t go back further than 1959.)
Fifth, mortgage rates are at a 38-year low. (At least. Records don’t go back further than 1971.)
Sixth, exuberant demand and limited supply in many post-bubble cities are leading to bidding wars, especially (but not exclusively) for low-end properties. In San Diego, prices are up 14 percent in the past eight months. In Las Vegas, where bidding wars are the norm, buyers are “going crazy.” Some California cities, like Bakersfield, report unsold inventory of just two months. San Diego reportedly has just a 1.5-month supply of low-end homes, despite a steady stream of foreclosures.
Housing bears response that demand will dry up once federal tax credits expire. Moreover, they argue that supply will surge once the much-discussed “shadow inventory” of foreclosures hits the market.
But homebuyer tax credits aren’t going to expire until June 30, 2010. That’s seven months from now. And, let’s be honest, if the housing market is showing significant signs of distress, Congress will not allow the tax credit to lapse. Not in the middle of an election year.
And there is little empirical evidence to support the notion that a tidal wave of foreclosures is about to hit. “From the things I’m seeing, there’s not going to be a wave [of foreclosures] any time soon,” says Sean O’Toole, president of ForeclosureRadar. At least one major lender has dramatically reduced the number of foreclosures it is offering for sale. Fannie Mae has launched a program to rent homes back to borrowers rather than foreclose on them.
Yes, there are a lot of foreclosures in the pipeline — no one disputes that — but these homes will probably hit the market in a steady stream over a period of several years rather than all at once. The process of foreclosure is getting slower, due to clogged courts and borrower-friendly judicial rulings. If demand remains as strong as it has been, expect foreclosures to be promptly snapped up by buyers and prices to continue their upward trajectory.
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Jim the Realtor on home inventory in San Diego:
In December, 2008 the average amount of homes for sale was 15,116.
On August 11, 2009, the total amount of active listings was 11,457.
On September 22, 2009, the amount of actives was 8,149.
Today’s inventory count is 7,955…
The lower inventory counts are excruciating for the ready, willing, and able buyers. Any decent houses that list with an attractive price are still being scooped up quick.
Las Vegas provides more evidence that post-bubble housing markets are flaring up again. CNBC reports that the Las Vegas housing market has reached fresh heights of lunacy as the inventory of homes has declined to 3-months of supply. Although the vast majority of the homes for sale are foreclosures offered by banks, buyers are literally stepping over each other to outbid for these homes.
The following experience by a recent Vegas home shopper summarizes what is happening:
“We went to a home that had been on the market for one day, and the key was stolen out of the lock box. Our Realtor said immediately, ‘You want this home.’ She told us another Realtor had stolen the key because they wanted their client to get it. So what did my Realtor do? She broke in. And sure enough this was the home we fell in love with. It was on for $132,000 so we decided to be really aggressive and offered $160,000, plus we had government backing on our loan. Well our Realtor called that night and said, ‘You’re not going to get the home. They got 30 offers and half are cash offers, so the bank is not even going to look at you.’ The banks just want the cash to unload these places.”
Las Vegas may have finally hit rock bottom in its post-bubble wake. As the Federal Reserve promises to keep money extremely cheap through much of 2010, the price response in post-bubble markets like Las Vegas could surprise more to the upside than we might expect.