Existing-home Sales Flat for Now

The volume of existing-home sales is expected to hold steady through late spring, with a gradual recovery during the second half of the year as the mortgage situation improves in high-cost areas, according to the latest forecast by the National Association of Realtors.

Lawrence Yun, NAR chief economist, said many buyers have been waiting for higher mortgage loan limits. “The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions,” he said. “Therefore, a notable rise in home sales can be anticipated in the second half of the year.”

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in January, held at a stable level of 85.9, unchanged from December, but was 19.6 percent below the January 2007 reading of 106.8.

The PHSI in the West jumped 13.0 percent in January to 93.8 but remains 12.7 percent below a year ago. In the Midwest, the index rose 0.6 percent to 85.2 but is 13.3 percent lower than January 2007. The index in the Northeast declined 4.1 percent in January to 69.6 and is 28.0 percent below a year ago. In the South, the index fell 6.1 percent in January to 89.5 and is 23.8 percent below January 2007.

Existing-home sales are forecast to remain flat around an annual level of 4.9 million in the first half of the year before improving to a 5.8-million pace in the second half. With a weak first half, total sales for 2008 are projected at 5.38 million, but are then seen to rise 3.5 percent to 5.60 million in 2009. The aggregate existing-home price is projected to decline 1.2 percent to a median of $216,300 this year, and then increase 3.5 percent to $223,800 in 2009.

House Prices

Stage Set for Mild Recovery

The housing bubble has not only burst but it is fully deflated, setting the stage for a mild recovery, according to a study published by SMR Research Corp.

The recovery, which SMR predicts would begin prior to year-end 2008, is likely to be gradual, with house prices merely firming up or increasing slightly, rather than returning to the strong growth they showed from 2002 to mid-2006, the firm said.
SMR specializes in mortgage and home equity loan industry research and claims to have been among the first to declare (in 2002) that a housing price bubble existed, defined as prices rising faster than consumer incomes. In a 2004 study, SMR forecast that a “perfect storm” in credit quality would cause an explosion in foreclosures within two years.

Stuart A. Feldstein, SMR president, says he expects a skeptical reaction to the recovery forecast. “Our prior forecasts were accurate but widely disbelieved when issued,” he noted.

“Homes are now affordable again,” Feldstein says. “Consumer psychology is the biggest remaining hurdle to recovery.”
The recovery in housing will be tempered by three negatives, SMR says. First, borrowers with low credit scores may be unable to participate. Second, existing-home owners who owe more money than their homes are worth may find it difficult to move until prices firm up. Third, there is another type of housing “bubble” that may still exist, SMR says. It is the difference between home purchase down payments and household savings.

Real Estate

Foreclosures up in January

RealtyTrac’s 2008 January Foreclosure Market Report shows foreclosure filings — default notices, auction sales notices and bank repossessions — were reported on 233,001 properties during the month, an increase of 8 percent from the previous month and an increase of nearly 57 percent from January 2007. RealtlyTrac is an online marketplace for foreclosure properties

“January’s foreclosure numbers demonstrate that foreclosure activity is continuing on its upward trend, substantially increasing from a year ago in many states,” said James J. Saccacio, chief executive officer of RealtyTrac. “However, the 8 percent monthly increase in January is not as precipitous as the 19 percent spike we saw in January of 2007, and several key states actually experienced decreasing foreclosure activity from the previous month. It could be that some of the efforts on the part of lenders and the government — both at the state and federal level — are beginning to take effect. The big question is whether those efforts are truly helping homeowners avoid foreclosure in the long term or if they are just temporarily forestalling the inevitable for many beleaguered borrowers.”


System Reform Needed: NAHB

To help bolster a faltering housing market, the National Association of Home Builders (NAHB) called on Congress to enact comprehensive regulatory reform for housing government sponsored enterprises (GSEs) Fannie Mae, Freddie Mac, and the Federal Home Loan Banks that will ensure their financial soundness.

Because their regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), continues to impose a 30 percent capital surcharge on both companies, Fannie and Freddie are attempting to build their capital reserves by imposing higher fees that will raise mortgage borrowing costs at the worst possible time, Jerry Howard, executive vice president and CEO of NAHB, said.

“OFHEO is constraining the ability of Fannie and Freddie to do all they can to promote affordable housing and to help strapped borrowers. At the same time, HUD’s mission oversight over the two GSEs is lacking. HUD should be requiring them to do more, not less, in the present dire mortgage market circumstances,” said Howard.

NAHB believes that H.R. 1427, the Federal Housing Finance Reform Act of 2007, which passed the House last May, makes progress in allowing the GSEs to operate in a sound manner while preserving the vitality of their government-sponsored status for the fulfillment of their housing mission.

In crafting a Senate bill to strengthen the regulatory framework of the GSEs, Howard urged lawmakers to:

  • Balance the GSEs’ housing mission with safety and soundness concerns.
  • Provide Fannie Mae and Freddie Mac the flexibility to respond promptly, within their charters, to meet market needs.
  • Extend the increase of conforming loan limits in high-cost areas.
  • Focus and enhance GSE benefits to expand affordable housing opportunities.
  • Employ capital as a precise instrument of risk management

Preserve GSE portfolios as tools for achieving liquidity and their affordable housing mission.

Housing Starts

Overall Production Down Slightly

Single-family housing starts continued on a downward trajectory in February, posting a 6.7 percent decline to a seasonally adjusted annual rate of 707,000 units, according to figures released by the U.S. Commerce Department. Meanwhile, production in the more volatile multi-family sector registered a 14.4 percent gain to 358,000 units, limiting the decline in total housing starts to a rate of 1.065 million units — 0.6 percent below the revised January pace.

“Builders continue to scale back production of single-family homes in an effort to contain inventories amidst ongoing problems in the mortgage finance arena and other challenges that are keeping many potential buyers on the fence,” said NAHB president, Sandy Dunn, a home builder from Point Pleasant, W.Va.

Regionally, housing starts were unchanged for the month in the Midwest, up nearly 4 percent in the South and up 5.1 percent in the West, while the Northeast posted a 27.7 percent decline that offset a large boost in the previous month. However, every region was down on a quarterly basis in February.

Permit issuance, which can be an indicator of future building activity, declined 7.8 percent overall in the month to a seasonally adjusted annual rate of 978,000 units, with a 6.2 percent decline registered in the single-family sector to 639,000 units and a 10.8 percent decline on the multifamily side to 339,000 units.

Housing Index

Builder Confidence Unchanged

Builder confidence in the market for new single-family homes remained unchanged in March, according to the NAHB/Wells Fargo Housing Market Index (HMI). The HMI held firm at 20, which is near its historic low of 18 set in December of 2007.

Two out of three of the HMI’s component indexes were unchanged in March from the previous month. The index gauging current sales conditions for newly built single-family homes held firm at 20 while the index gauging traffic of prospective buyers stayed at 19 following a significant gain in February. The index gauging sales expectations for the next six months edged downward by a single point to 26.

Regionally, the HMI was mixed, with the Northeast posting a two-point decline to 21, the Midwest holding even at 16, the South reporting a two-point gain to 26 and the West showing a one-point decline to 15.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.”