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Housing Analysis
Housing Starts Climb Unexpectedly In May
Jun 17th
The housing market received a jolt of good news Thursday. The Commerce Department reports that Single-Family Housing Starts improved in May.
As compared to April, last month’s Single-Family Housing Starts rose 4 percent to a seasonally-adjusted, annualized rate of 419,000 units, a figure slightly better than the 6-month average and the highest tally since January.
A “housing start” is defined as a home on which new construction has started.
In addition, Building Permits saw a boost in May, too, climbing nearly 9 percent overall. Building Permits are a gauge of future construction activity with 89 percent of permits leading to new construction within 60 days.
For several reasons, the May data surprised Wall Street analysts.
First, more homes being built suggests a healthier housing market, yet, earlier this week, the June homebuilder confidence report posted its lowest reading since September 2010.
Second, new home sales are only slightly higher than their all-time lowest annualized readings. Sales volume remains low in Chicago and nationwide.
And, lastly, home prices have yet to recover in full. By adding additional inventory, builders may suppress price growth through the remaining portions of 2011.
For home buyers in Illinois , though, the Housing Starts data may be a signal that the market is turning. The data can be used to your advantage.
Home prices are a function of supply and demand and — based on the Housing Starts data plus the number of newly-issued Building Permits — home supply is likely to rise. Demand, on the other hand, despite low mortgage rates, may not. At least not in the short run.
As a buyer, you can use this information to your advantage. If you’re looking to buy new construction, ask your real estate agent about the current new homes supply. There are bargains to be found and May’s Housing Starts data should support low prices for at least the next few weeks.
Monthly Foreclosure Count Drops For 16th Straight Month
Jun 16th
Foreclosure rates are falling.
According to foreclosure-tracking firm RealtyTrac, monthly foreclosure filings fell 2 percent in May to just under 215,000 filings nationwide. A foreclosure filing is defined as any one of the following: a default notice, a scheduled auction, or a bank repossession.
On an annual basis, foreclosure counts have dropped over 16 consecutive months, dating back to January 2010.
Like all things in real estate, though, foreclosures are local. 6 states accounted for more than half of the country’s foreclosure filings in May. Those six states — California, Michigan, Arizona, Florida, Georgia and Texas — represent just 34% of the U.S. population.
But even on a per household basis, the figures remain disproportionate.
- Top 10 Foreclosure States : 1 foreclosure per 357 households, on average
- Bottom 10 Foreclosure States : 1 foreclosure per 8,764 households, on average
The nationwide foreclosure rate was 1 foreclosure per 605 households.
As a home buyer in Chicago , foreclosures matter. Distressed homes account for close to 40% of home resales and that’s because distressed properties often sell at steep discounts; in some markets, up to 20 percent less than a comparable, non-distressed home. Foreclosed homes can be a great “deal”, therefore, but only if you’ve done your homework.
Buying a bank-repossessed home is different from buying from “people”. The contracts and negotiation process are different, and homes are sometimes sold with defects.
If you plan to purchase a Illinois foreclosure, therefore, speak with a real estate professional first. With foreclosures, there’s a lot you can learn online, but when it comes time to submit an actual bid, you’ll want an experienced agent on your side.
“Homes Under Contract” Plunge 12 Percent In April
Jun 7th
Hurt by foul weather and a soft market, the Pending Home Sales Index plunged 12 percent in April.
The monthly index is published by the National Association of REALTORS® and measures the number of homes on which new contracts have been written.
It’s the association’s lone “forward-looking” report; meant to predict future, closed home sales. 80% of homes under contract close within 2 months.
Therefore, if the April Pending Home Sales Index is accurate, we should expect home sales to decline through June and July.
On a regional basis, “pending homes” varied. The Northeast Region posted growth. None others did.
- Northeast Region: +1.7% from March
- Midwest Region : -10.4% from March
- South Region : -17.2% from March
- West Region : -8.9% from March
But even regional data remains too broad to be useful to everyday buyers and sellers in the Chicago market. Housing is local and that means that each block, of each street, in each city has its own market and economy. Grouping 9 states into a single “region” is neither helpful nor relevant.
That said, we can’t ignore the data in its entirety.
Housing is believed to be a key component in the nation’s economic recovery. Fewer home sales will retard growth, and slower growth leads mortgage rates down.
Home Affordability hit record-highs last quarter, and should do the same in this one. Homes now sell at discounts to prior prices and mortgage financing is cheap. Buyers tend to be drawn to favorable markets such as this, and that will pressure home prices higher.
If you’re in the market for a home today, conditions look good. Talk to your real estate agent to gauge your options.
Case-Shiller Shows Home Values Rolling Back 9 Years
Jun 3rd
The March Case-Shiller Index was released this week and it corroborates the findings of the government’s most recent Home Price Index — home values are slipping nationwide.
According to the Case-Shiller Index’s publisher, Standard & Poors, home values fell in March from the year prior.
The March report was among the worst Case-Shiller Index readings in 3 years. On a monthly basis, 18 of 20 tracked markets worsened. Only Seattle and Washington, D.C. showed improvement, rising 0.1% and 1.1%, respectively.
On an annual basis, price degradation was even worse.
Washington, D.C. is the only tracked market to post higher home values for March 2011 as compared to March 2010. The national index has now dropped to mid-2002 levels.
As a buyer in today’s market, though, you can’t take the Case-Shiller Index at face value. It’s methodology is far too flawed to be the “final word” in home prices.
The first big Case-Shiller Index flaw is its relatively small sample size. S&P positions the Case-Shiller Index as a national index but its data comes from just 20 cities total. And they’re not the 20 most populous cities, either. Notably missing from the Case-Shiller Index list are Houston (#4), Philadelphia (#5), San Antonio (#7) and San Jose (#10).
Minneapolis (#48) and Tampa (#55) are included, by contrast.
A second Case-Shiller flaw is how it measures a change in home price. Because the index throws out all sales except for “repeat sales” of the same home, the Case-Shiller Index fails to capture the “complete” U.S. market. It also specifically excludes condominiums and multi-family homes.
In some cities — such as Chicago — homes of these types can represent a large percentage of the market.
And, lastly, a third Case-Shiller Index flaw is that it’s on a 2-month delay. It’s June and we’re only now getting home data from March. Today’s market is similar — but not the same — to what buyers and sellers faced in March. The Case-Shiller Index is far less useful than real-time data of a city or neighborhood.
The Case-Shiller Index is more useful to economists and policy-makers than to everyday buyers and sellers in Chicago. For better real estate data for your particular neighborhood, ask your real estate agent for help.
A real estate agent can tell you which homes have sold in the last 7 days, and at what prices. The Case-Shiller Index cannot.
Home Affordability Still Soaring; New Records Reached
May 27th
Home affordability moved higher last quarter, buoyed by stable mortgage rates and falling home prices in Illinois and nationwide. The National Association of Home Builders reports that Q1 2011 Home Opportunity Index reached an all-time high for the second straight quarter last quarter.
Nearly 3 of 4 homes sold between January-March 2011 were affordable to households earning the national median income of $64,400. It’s the 9th straight quarter in which home affordability surpassed 70 percent, and the highest reading in more than 20 years of record-keeping.
From metropolitan area-to-metropolitan area, though, affordability varied.
In the Midwest, for example, affordability was high. 7 of the 10 most affordable markets were in the Midwest, including Kokomo, Indiana, in which 98.6% of homes were affordable to median income-earning families. Indianapolis, Indiana placed second for “big city” affordability.
The most affordable “big city” last quarter was Syracuse, New York. With a 94.5% affordability rate, Syracuse ranks 8th nationally in the Home Opportunity Index. It’s the second time that Syracuse placed first in the last 4 quarters.
Meanwhile, on the opposite end of home affordability, the “Least Affordable Major City” title went to the New York-White Plains, NY-Wayne, NJ area for the 12th consecutive quarter. Just 24.1 percent of homes were affordable to households earning the area median income, down more than 1 percent from the last reading.
Regardless of where you live, remember that rising mortgage rates can levy more pain on your household budget than can rising home values. And mortgage rates are expected to rise long before home prices do.
The rankings for all 225 metro areas are available for download on the NAHB website.
Home Price Index Shows Values Down 19 Percent From Peak
May 26th
Home values dropped for the sixth straight month in March 2011, according to the Federal Home Finance Agency’s Home Price Index. The Home Price Index is a government-sponsored home value tracker.
The HPI report is the latest in a string of “falling home values” stories — a trend that’s troubling home sellers across Chicago and nationwide.
However, although the Home Price Index says home values are falling, that doesn’t necessarily mean that they are. Like most statistics in the housing sector, the Home Price Index is plagued by poor methodologies and a lack of timeliness.
In short, the Home Price Index is flawed. In three ways.
The first big flaw in the Home Price Index is that it only measures the values of homes with mortgages backed by Fannie Mae or Freddie Mac. Homes financed via FHA, or via other means are specifically excluded from the calculation. For today’s purchase market, that leaves more than 1 in 4 homes “uncounted” — a big percentage of the market.
Second, the Home Price Index determines home values by measuring price change from sale to subsequent sale. This eliminates new homes — a major market segment.
And, lastly, the Home Price Index reports on a 60-day delay; we’re only now seeing data from March. This two-month lag renders the HPI a trailing indicator for the housing market instead of a forward-looking one. If you’re a home buyer looking for market insight, the HPI can’t give it — it’s out-dated and out of season.
Despite its shortcomings, though, we can’t ignore the Home Price Index completely. It’s among the most thorough home valuation models available, and it’s used in public policy discussions. When the HPI says prices are down, Wall Street and Capitol Hill take notice, and that trickles down to everyday life on Main Street.
Since peaking in April 2007, the Home Price Index is off 19.1 percent.
New Home Sales Increase For The Second Straight Month
May 25th
Sales of newly-built homes surprised Wall Street, jumping 7 percent to an seasonally-adjusted, annualized 323,000 units last month.
In addition, the supply of new homes dropped to 6.5 months — a 2-month decrease from October 2010 and the best reading in a year.
The report runs counter to recent reports from the National Association of Homebuilders and the National Association of REALTORS® which suggest a looming housing slowdown. April’s New Home Sales report runs counter to that theory; it shows ongoing, steady, staggered improvement in terms of sales volume and sales inventory.
Broken-down by sales prices, the New Home Sales report also showed that homes are selling across all price tiers. The “luxury market” improved most:
- Up to $199,999 : +1,000 homes from March
- $200,000 to $399,999 : +2,000 homes from March
- $400,000 and over : +3,000 homes from March
These figures suggest that that move-up buyers — not first-timers — are driving the new home market. Homes under $200,000 now account for just 40% new home sales, down from 46% a year ago.
However, as with most months, it’s important that we recognize the New Home Sales data’s margin of error. Although New Home Sales showed a 7% improvement in April, the reported margin of error was ±17%. This means that the actual reading could have been as high as 24 percent, or as low as -10 percent.
It’s a huge range, and because it encompasses both positive and negative values, the Census Bureau assigned its April reading “zero confidence”. It’s right there in the footnotes.
For home buyers in Chicago , rising sales and falling supply may mean higher home prices. And, combined with the issuance of fewer building permits, supplies may be constrained into the summer months. This, too, would pressure home prices higher.
Distressed Homes Now Selling At A 20 Percent Discount
May 20th
The housing market recovery stalled last month. At least temporarily.
According to the National Association of REALTORS®, Existing Home Sales slipped 1 percent in April from the month prior, falling to 5.05 million units on a seasonally-adjusted, annualized basis. The reading is exactly in-line with report’s 6-month average which also reads 5.05 million units.
The data may appear “average”, but there’s another angle to consider.
In April, as compared to March, the supply of existing homes for sales spiked. At the current pace of home sales, it would now take 9.2 months to exhaust today’s complete home inventory. This is almost one full month worse than March. It’s the worst home supply reading of the year.
There are also more homes “on the market” today than at any time since September 2010.
Other noteworthy statistics in the April Existing Home Sales report include:
- 31 percent of all homes sold in April were purchased with cash
- First-time home buyers bought 36 percent of all homes in April
- Distressed properties typically sold at a 20 percent discount
This “discount”, it should be noted, is a major reason why distressed properties accounted for 37 percent of the home resales in April. Home buyers are finding bargains when they’re willing to consider homes in various stages of foreclosure and short sale.
Overall, the April Existing Home Sales report represents opportunity for home buyers in and around Chicago. Home sales are stagnant, supplies are rising and there’s no shortage of properties from which to choose. Furthermore, mortgage rates remain low.
If you’re considering a home purchase this fall, home supply may not be as ample, and financing conditions may not be as favorable, post-Labor Day. Talk to your real estate agent about what’s possible today. You may want to move up your time frame.
Building Permits Fade Faster Than Expected
May 18th
Single-family housing starts dropped by 21,000 units in April on a seasonally-adjusted annual basis.
The Housing Starts report measures the number of homes on which new construction “broke ground”. It’s tracked by the U.S. Department of Commerce which releases new data monthly.
Single-family housing starts fell 5 percent as compared to March 2011, and 30 percent as compared to April one year ago.
The figures were worse than what Wall Street expected. For just the second time in 2 years, monthly single-family housing starts dropped below 400,000 units. In addition, single-family Building Permits fell in April as well, shedding 2 percent from March.
A building permit is a local government’s approval to start home construction and when permits are down, new construction follows. This is because 93 percent of homes begin construction within 60 days of permit-issuance.
Fewer permits, as a consequence, means fewer new homes. Therefore, if you’re looking at new construction in or around Chicago , April’s numbers may spark a sense of urgency.
Home prices are a function of home supply and demand and, based on the Housing Starts data, supplies appear headed for a fall. Meanwhile, on the other side of the equation, demand should be rising — foot traffic is higher, mortgage rates are lower, and job growth is picking up.
This should lead new home prices higher in time. For now, though, home affordability remains high.
It’s a good time to look at new home construction.
Home Builders Seeing More Sales Today; Fewer Sales Tomorrow
May 17th
Home builder confidence can’t shake its range, according to the National Association of Home Builders. The group’s monthly Housing Market Index put May’s builder confidence reading at a level of 16.
The Housing Market Index is scored on a scale of 1-100. A reading above 50 suggests favorable conditions for the new home housing market, as reported by home builders. A reading below 50 suggests unfavorable conditions.
May marks the sixth time in 7 months that the HMI posted a 16, the longest such plateau in the index’s history.
The HMI has not posted higher than 50 since April 2006.
As an index, the HMI is a composite of three separate surveys sent to home builders each month. The surveys are meant to capture the current and projected single-family home sales volume, in addition to buyer foot traffic levels.
Versus April, there was little change:
- Current single-family sales : 16 (+1 from April)
- Projected single-family sales : 20 (-2 from April)
- Buyer foot traffic : 14 (+1 from April)
Broken down, the Housing Market Index for May shows that home builders are experiencing a boost in sales and foot traffic today, but expect that boost to fade between today and November. For home buyers in Chicago , this can present an opportunity.
With home builder confidence stagnating, and with a worsening sales expectation for the next 6 months, builders may be more willing to negotiate with you on home prices and/or the costs of upgrades. Builders may also be more willing to make concessions in your sales contract that would otherwise be unavailable to you.
Your real estate agent can help you to identify the negotiable items of your offer.
In addition, today’s home buyers can exploit the recent strength of the mortgage market. Surging mortgage bond demand since April has pushed mortgage rates down to their lowest levels of the year. If you can find a home you love, therefore, it can be financed on the (relative) cheap, too.
Conforming mortgage rates in Illinois fell through 5 consecutive weeks before rising last week.