Housing starts and permits data for February just hit the tape. Here’s a recap of the numbers:
* Housing starts fell 5.9% to a seasonally adjusted annual rate of 575,000 in February, which sounds worse than the -3.6% forecast. But the January starts figure was revised up to 611,000 from 591,000 and the raw number that economists were looking for was 570,000. Long story short, starts were mostly in line with expectations. Building permit activity fell 1.6% to 612,000, which was slightly better than the 601,000 forecast.
* By property type, single family starts dipped 0.6%, while multifamily starts tanked 30.3%. Permitting activity slipped 0.2% in the single-family market and fell 7.6% in the multifamily category. If you step back and look at the longer-term trend, it’s fair to say we’ve basically flat-lined for the past year.
* Regionally, starts were a mixed bag. They dropped 15.5% in the South and fell 9.6% in the Northeast, but rose 7.9% in the West and gained 10.6% in the Midwest. Building permits slipped 2.1% in the West and fell 5.8% in the South. They flat lined in the Northeast and rose 11.7% in the Midwest.
Someone should get out the paddles — because the housing market is flat lining! Tight credit conditions, anemic demand, and inventory pressure from the “used” home market are all keeping builders on the gurney. And frankly, that’s what I’ve been expecting.
While the inventory of new homes on the market has plunged to the lowest level since the early 1970s, distressed inventory continues to be parceled out into the market. That means buyers have plenty of cheap existing homes to choose from. That, in turn, means builders have little incentive to ramp up production. We won’t see a more notable upturn in starts — or if you prefer, the patient walking on his own — until 2011. But at least the three-year crash that began in 2006 is over.
The National Association of Home Builders just released its latest report on the housing industry. The overall index fell to 15 in March from 17 in February. Among the subindices, the index tracking present sales declined to 15 from 17, while the index measuring perceptions about future sales dropped to 24 from 27. Those figures are roughly in the same range as they’ve been for months. However, an index measuring present buyer traffic slumped to 10 from 12 — the lowest reading in a year.
Regionally speaking, the Northeast fared the best. Its index rose to 23 from 18. The West index also inched up to 15 from 14. Meanwhile, the South index fell to 18 from 19 and the Midwest index slid to 10 to 13.
Home buying activity remains muted, especially on the new housing side of the ledger. Builders of new homes are simply having a very difficult time competing against “nearly new” homes being dumped on the market by burned speculators and banks. That dynamic will persist for some time because foreclosed homes will continue to be parceled out into the market over the next couple of years. Still, we’re slowly but surely working through the overhang of excess inventory. That will eventually help stabilize home pricing and make life easier on the builders.
The pending home sales figures for January just hit the tape. Here’s a recap:
* Sales dropped 7.6% between December and January. That compared to the 1% gain that economists were expecting.
* At 90.4, the index was up up 12.4% from the year-ago level of 80.4.
* By region, pendings fell across the board. They slipped 2.1% in the South, fell 8.7% in the Northeast, dropped 8.9% in the Midwest, and tanked 13.2% in the West.
Pending sales were another big disappointment in January. Transactions fell much more sharply than expected, with declines noted in all regions of the country. I’m not sure why this was such a surprise, given the lousy new home sales figures we already had. But it is what it is.
The bigger picture story here? The hangover from the initial home buyer tax credit is proving to be worse than expected. Throw in a lackluster job market and a sputtering economy, and you can see why sales aren’t spiking. It doesn’t mean we’re headed into an even-deeper housing depression. Lower prices and low mortgage rates are combining to make homes more affordable than they’ve been in a long time — and some buyers are responding. But it does mean a vigorous recovery will continue to be MIA.
The new home sales report for January was downright dismal. So how did the existing market fare?
* Existing home sales dropped 7.2% to a seasonally adjusted annual rate of 5.05 million in January. That was well below forecasts for a reading of 5.5 million.
* Regionally, sales were down across the board. They fell 5.2% in the West, 6.9% in the Midwest, 7.4% in the South, and 10.9% in the Northeast. By property type, single family sales dropped 6.9%, while condo and coop sales fell 8.1%.
* The raw number of homes for sale slipped 0.5% to 3.265 million from 3.283 million in December. Compared with a year earlier, supply has fallen 9.6%. The months supply at current sales pace indicator of inventory rose to 7.8 from 7.2; that’s the highest since September. Median prices fell 3.4% to $164,700 in January from $170,500 in December. On a year-over-year basis, prices were unchanged.
New Year’s revelers weren’t the only ones with hangovers in January. Both the existing and new home sales markets clearly suffered from one related to the home buyer tax credit. The credit juiced sales in mid-2009 for new homes and late-2009 for existing homes. Yet in its wake, demand is clearly tapering off. The extension and expansion of the credit should help later in the spring selling season as the new deadline looms. But so far, it just isn’t happening, with sales plunging almost 23% in the past two months.
Is there any good news in the latest batch of figures? Well, the supply of homes for sale continues to shrink. We’ve chipped away at the mountain of inventory to the tune of 1.3 million units over the past year and a half. That’s a sign of progress. With median prices now running at their lowest level since May 2002, we’re also taking care of the housing affordability problem that helped burst the bubble in the first place. That’s cold comfort for upside-down homeowners. But it’s exactly what we need to prompt some bottom-fishing by today’s budget-conscious buyers.
The latest new home sales figures came out a little while ago. No sugar-coating these numbers. they stink. More details:
* New home sales plunged 11.2% in January to a seasonally adjusted annual rate of 309,000 from an upwardly revised 348,000 in December. That was much worse than the 354,000 figure economists were expecting and below the previous record low sales rate of 329,000 a year ago. Data on new homes goes all the way back to 1963.
* The regional breakdown wasn’t anything to write home about, either. Sales fell 9.5% in the South, dropped 11.9% in the West, and plunged 35.1% in the Northeast. They inched up 2.1% in the Midwest.
* The supply of new homes for sale increased to 234,000 from 233,000 in December. That’s the first time in 32 months that the raw number of homes for sale increased. The sharp decline in sales drove the “months’ supply at current sales pace” indicator of inventory to 9.1 from 8. That’s the highest reading since last May (9.5).
* The median price of a new home fell 5.6% to $203,500 from $215,600 in December. On a year-over-year basis, prices fell 2.4%. Home prices are now the lowest since December 2003.
So much for the trend of decent housing news! January’s new home sales figures were awful across the board. Fewer new homes were sold in this country than at any time since the Kennedy administration. The inventory of homes for sale increased, and the median price of a new home fell to its lowest level in more than six years.
What the heck happened? For one thing, the new home builders are getting their clock cleaned by the existing home market. Distressed inventory continues to hit the market at cut-rate prices, drawing potential buyers away from new product. For another, we’re still dealing with a tax credit “hangover” effect. And let’s face it, the job market is nothing to write home about, either. I still think we’re on the long, slow road to an anemic, lackluster recovery in housing. But numbers like these can sure shake your faith.
The latest S&P/Case-Shiller data on home prices was released this morning. The 20-city index rose 0.3% between November and December, the biggest monthly rise since August. On a year-over-year basis, prices are still down 3.1%. But that’s the smallest decline going all the way back to May 2007. Prices are actually UP from year-ago levels in six cities now, led by San Francisco at 4.8% and Dallas at 3%. We are still seeing YOY declines in hard hit markets like Las Vegas (-20.6%), Tampa (-11%) and Detroit (-10.3%).
More evidence that housing is broadly stabilizing? Yep.
The Mortgage Bankers Association just released figures on Q4 2009 home loan performance. What did the numbers show?
* The overall mortgage delinquency rate fell to 9.47% in Q4 2009 from 9.64% in Q3 2009. That’s the first quarter-over-quarter decline in delinquencies since Q1 2007. Of particular note: The percentage of loans 30 days behind on payments dropped to 3.31% — the lowest since Q2 2008. That is an encouraging sign because it signals that fewer borrowers are entering the delinquency/foreclosure process, the first step toward recovery. But let’s be clear that the overall delinquency rate is still much, much higher than the recent low of 4.31% in Q1 2005.
* Breaking it down by loan type, the subprime DQ rate fell to 25.3% from 26.4% while the prime-only DQ rate dropped to 6.73% from 6.84%. The FHA delinquency rate slipped to 13.6% from 14.4%, while the VA DQ rate fell to 7.4% from 8.1%.
* What about foreclosures? The percentage of loans in any stage of foreclosure rose to 4.58% from 4.47%. Both prime and subprime foreclosure rates rose to new highs. However, the rate of foreclosure STARTS fell to 1.2% from 1.42%. That’s the lowest percentage of loans entering the foreclosure process since Q4 2008.
I pointed out as far back as May 2009 that it appeared the housing market was stabilizing. My call: That cheaper home prices, low mortgage rates, increased affordability, and the overall improvement in the economy would cause sales rates and construction activity to stabilize. I added that inventory levels had peaked, but that prices would likely still be under pressure through the end of 2010.
Why share that background information? Because we’re now seeing the next piece of the puzzle fall into place. Specifically, early stage delinquencies are stabilizing. This is a key sign that housing market conditions are slowly, grudgingly, getting slightly better. We’re also seeing foreclosure starts fall as loan modification efforts ramp up and regulatory forbearance shifts into high gear.
This does NOT mean we’ll have a vigorous recovery. We won’t. Many loan mods will fail, the unemployment rate remains elevated, and lending standards will remain relatively strict for some time. But almost five years after the crash began, it’s encouraging to see yet another indicator pointing toward broad-based stabilization.
Investors are increasingly reluctant to step up and buy long-term Treasuries. The proof is in the results from yesterday’s sale of $25 billion in 10-year notes and today’s sale of $16 billion in 30-year bonds.
Today, the bonds were sold at a yield of 4.72%, versus pre-auction talk of 4.687%. The bid-to-cover ratio was just 2.36, compared with an average over the last 10 auctions of 2.48. Indirect bidders took down just 28.5% of the auction, compared to a 10-auction average of 43.2%. These results are simply awful.
Yesterday, the 10-year note auction also went over like a lead anchor. Only 33.2% of the notes went to indirect bidders. The average over the last 10 auctions was 39.3%. The bid-to-cover ratio was just 2.67, down from 3 at last auction and a 10-auction average of 2.76. Also, the yield at the sale was 3.692% vs. a 3.68% pre-auction forecast.
This is precisely what I’ve been warning about. The debt and deficit crisis that has already struck countries like Portugal, Greece, and Spain is inevitably going to make its way around to larger countries like the U.K. and the U.S. The simple reason? We face similar problems with massive debts and massive deficits.
In other words, stay the heck away from long-term Treasuries!
Pending homes sales figures were just released for December. Here’s what the numbers showed:
* Sales rose 1% between November and December. That was right in line with what economists were expecting.
* At 96.6, the index was up 10.9% from the year-ago level of 87.1.
* By region, pending sales were broadly higher. They climbed 2.2% in the South, 2.3% in the Northeast, and 5.2% in the Midwest. Sales fell 3.8% in the West.
The pending sales index stabilized at the end of 2009. That potentially sets the stage for a more positive spring selling season. Indeed, with mortgage rates low, house prices down, and the supply of homes for sale steadily falling, it’s easy to see why the market should stabilize.
At the same time, we lack a catalyst for a vigorous recovery. Unemployment remains a problem and the housing market is still dealing with the “hangover effect” from the bubble — too much foreclosure inventory, tighter lending standards, and so on. The result? We’ll likely just muddle through instead of witness a V-shaped recovery like those that followed previous housing busts.
We just got the latest new home sales figures for the month of December. Here’s what they showed:
* New home sales dropped 7.6% to a seasonally adjusted annual rate of 342,000 from an upwardly revised 370,000 in November. That missed expectations for a sales rate of 366,000, and it leaves sales at the lowest level since March. The regional figures were all over the map, with sales up 42.9% in the Northeast, down 41.1% in the Midwest, up 5.2% in the West, and down 7.3% in the South.
* The supply of new homes for sale dropped again to 231,000 from 235,000. That’s the 32nd consecutive monthly decline and it leaves the raw number of homes for sale at the lowest level since April 1971. But due to the decline in the sales rate, the “months supply at current sales pace” indicator of inventory rose to 8.1 from 7.6. That’s the highest since June.
* The median price of a new home rose 5.2% to $221,300 from $210,300 in November. That was still a decline of 3.6% from the year earlier level, however.
The new home market continued to wilt late in 2009. Sales slipped to the lowest level in nine months, while pricing remained weak. Ongoing labor market malaise and the tax credit “hangover” effect are two headwinds. Another is aggressive competition from banks and other lenders buried in foreclosures. The buyers who are willing and able to buy are flocking to cheaper, distressed, “used” homes because — to paraphrase Willie Sutton — “That’s where the bargains are.”
I still believe the “three steps forward, two steps back” recovery is in place. But as I’ve said all along, it will NOT be a vigorous, V-shaped affair like we’ve seen in past housing recoveries. We experienced a once-in-a-lifetime housing bubble, not a traditional expansion. That means we shouldn’t expect a traditional, vigorous, cyclical recovery.
