The latest figures on the new home market were released today. Here is what they looked like:
* New home sales surged another 14.8% in April after jumping 29.9% in March. That pushed the seasonally adjusted annual rate to 504,000 from an upwardly revised 439,000 in March. Analysts were looking for a sales rate of 425,000. Sales haven’t been this strong since May 2008.
* Regionally, sales flat-lined in the Northeast. But they rose 10.8% in the South, jumped 21.7% in the West and surged 31.6% in the Midwest.
* The raw number of homes for sales dropped to 211,000 from 227,000 in March. That’s the lowest level going all the way back to October 1968. Compared with a year earlier, inventory was off 29.7%. The months supply at current sales pace indicator of inventory dropped to 5 from 6.2. That’s the tightest reading since December 2005, right after the peak of the housing bubble.
* Median prices tanked 9.7% to $198,400 from $219,600 in March. On a year-over-year basis, prices were off 9.5% to their lowest level since December 2003.
The new home market rocked and rolled again in April, driven by the looming expiration of the tax credit and cheap, cheap home prices. Sales rose to their highest level in almost two years, while the supply of homes on the market plunged to a level we haven’t seen since the year before Neil Armstrong and Buzz Aldrin landed on the moon! At the same time, the median price of a new home plunged almost 10% to the lowest point in more than six years.
Clearly, government handouts have had their desired effect. They juiced home sales and helped builders clear out even more inventory. That would typically set the stage for a vigorous rebound in home construction and hiring … except for one problem. The “used” home market is still oversupplied, and will remain that way for some time thanks to a continuing influx of distressed and foreclosed property. We’re also going to see yet another “hangover” in the coming couple of months due to the tax credit’s expiration, with sales rates dropping off.
Bottom line: I don’t expect a vigorous rebound in housing. But I don’t expect a renewed collapse, either. Instead we’ll just bounce around the bottom for several quarters until all that inventory is burned off. If you want excitement, watch the Stanley Cup finals!
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Thought you might find this article interesting: I think prices in many markets are headed down once the current bubble pops.
Prime loan delinquencies escalate
New data flies in face of ‘market stabilization’ reports
By Steve Bergsman, Friday, May 28, 2010.
Inman News
Earlier this year, while attending a mortgage industry technology gathering in California, I decided to attend a press conference put on by Lender Processing Services Inc.
While most consumers have never heard of LPS, this Jacksonville, Fla.-based technology firm probably has heard of you. That’s because its technology platform, in one form or another, is used by the 50 largest banks in the country.
Not only does LPS service loans, but its in-house economists have begun to extrapolate pertinent data points. And that caught my interest.
“We have 40 million first loans and 5 million home equity loans and lines of credit in our repository and we see a lot of things from a trend perspective,” Grace Brasington, LPS’ executive vice president of strategic consulting services, told me after the press conference.
I got a strong hint of what LPS was seeing, but it all sounded so out of joint with other prognostications that I decided to do a follow-up call to Steve Berg, managing director at LPS’ applied analytics unit.
At the press conference, Berg’s partner in the analytics department noted prime loan total delinquencies were escalating, which was somewhat disturbing since other sources were reporting the housing market to be stabilizing.
In February, the Standard & Poor’s/Case-Shiller Home Price Index was reporting seven straight months of price gains. This good news was accompanied by numerous economists babbling that the price increases were “further evidence that conditions in the house markets continue to stabilize” and “people are realizing the bottom is creeping away.”
Berg and his analytics partner thought those sentiments were a bunch of crap. According to Berg, there is a huge inventory of prime loans in delinquency and heading for the wrong side of the market.
“We like to look at rates of change or velocity of deterioration,” says Berg. “If you look at a grouping of loans as prime, subprime, option ARM and FHA, you expect the prime group to have the lowest delinquencies, which is still the case, although prime loans reached 6.7 percent of total delinquency in the first quarter.”
While that looks good for prime, one of the important things to take into consideration is total deterioration of the group. Using January 2005 (a month of relative market stability) as a base, prime loans have deteriorated 305 percent relative to total delinquency rates at the beginning of 2005. The surprise is that deterioration vastly outpaces subprime, which vaulted 230 percent, and FHA, which has been flat in terms of total delinquency.
“This is an interesting way of predicting where the pockets of problems will be coming from,” says Berg. “If you look at the small “jumbo,” just over the conforming limit of $417,000, that bucket is 8.3 percent delinquent, up 1,500 percent from January 2005. There is no liquidity in that bucket now unless you got significant amounts of cash to put down.”
If one injects these data points into geographic-area surveys, serious problems being to emerge.
Berg uses Los Angeles County, home to a significant number of very high-priced residences, as an example. Looking at the data at the end of last year, the number of “dirty sales,” either short sale or REO, as a percentage of all total sales in the $250,000-and-below bracket, reached as high as 78 percent. However, the number of homes in that bracket that were in default or foreclosure was relatively modest, meaning the pipeline was shrinking.
In the lower-price home bracket where short sales and REOs had been concentrated, prices are not going to drop much more because it is already totally saturated with REOs and short sales — and the damage has been done.
As a comparison, in the highest price band, $750,000 and greater, only 16 percent of transactions were dirty sales. But, the number of properties in default and foreclosure are now higher than in the low-priced bracket and that, says Berg, “is going to whipsaw the home-sale market.”
Just below the high-price band, the jumbo-mortgage bracket of homes ranging from $500,000 to $699,000 is exhibiting similar ascending behavior. Dirty sales as of December 2009 were just 29 percent of total sales, the second-lowest percentage to the high-end band, but there were almost 40,000 jumbo loans already in default and foreclosure and those will eventually roll into the dirty sales category.
The band of prime loans for houses costing $350,000 to $499,999 performed moderately well with 41 percent of the total transactions as dirty sales. Unfortunately, the band had the highest concentration of defaults and foreclosures as of December 2009, more than 42,000 mortgages that would be sliding into dirty sales.
When dirty sales increase, home prices decrease.
Fitch Ratings took a look at mortgage delinquencies in U.S. prime residential mortgage-backed securities and noticed through February 2010, they had risen for 33 consecutive months.
Since delinquencies began to rise in second-quarter 2007, prime jumbo loan delinquencies nearly tripled in 2009 and were up through the first two months of the year by 69 basis points, Fitch Ratings reported. And, overall, prime jumbo RMBS 60-plus-days delinquencies rose to 9.9 percent in February, up from 9.6 percent the month before.
The five states with highest volume of prime jumbo loans outstanding were California, New York, Florida, Virginia and New Jersey. Together those five states represent about two-thirds of total delinquencies.
A friend who lives in Orange County, Calif., recently e-mailed me a PDF of a Los Angeles Times article that reported the median prices for homes sold in Southern California counties have risen substantially through mid-February. The newspaper interpreted that as great news, but what I wondered was, if you peeled away the data, the rise could be due to the fact that more higher-priced homes were going through the dirty sales process than ever before, thus inflating the median. And, really, that’s nothing to cheer about.
“The number of homes of $500,000 or more in value that are in danger of foreclosure and default are so much higher than we have seen in the past, it could flood the REO market,” Berg observes. “I don’t think a lot of people are thinking in this context. From a house-value perspective, the problem is migrating up the economic ladder to higher-priced property bands.”
My wife and I own some stock in a Power Company. Given current and likely future market
conditions is it wise to continue to hold this stock, or would we be better off to liquidate it?