For February, 2013

Pending Home Sales Soar Despite Rough Winter


Contracts to buy existing homes in January rose a strong 4.5% from the previous month, according to the National Association of Realtors, which also revised December’s numbers down. That beats expectations of a 1.8% gain. Volume is now 9.5% above January 2012 and is the highest reading since April 2010.

The existing home market is faced with a lack of supply of homes for sale, as nearly half of home sales last year were of distressed properties.

Banks have been slow to put foreclosed homes up for sale recently, possibly waiting for prices to improve further. Prices are rising fast, up nearly 7%  in December from a year ago in the nation’s 20 largest real estate markets, according to the S&P/Case Shiller Index.

Regionally, the Realtors’ Pending Home Sales Index in the West rose 0.1% in January but is 1.5% below a year ago. Supplies of homes for sale are most limited in the West, where investors have been buying distressed properties in bulk. In the Northeast the index edged up 8.2% in January and is 10.5% higher than January 2012. In the Midwest the index increased 4.5% and is 17.7% above a year ago. Pending home sales in the South rose 5.9% and are 11.3% higher January 2012.

Home Prices Soar on Short Supply, Investor Demand


Prices today are rising fast because supplies of homes for sale are so low. Both new and existing homes are running near four month supplies.

For new homes, builders just aren’t able to start fast enough, due to labor and land restraints.

For existing homes, there are fewer distressed properties for sale, a segment that has driven the market into recovery, and organic homeowners are either unwilling to list their homes for fear of selling at the bottom, or unable to list because they are still underwater on their mortgages.

Prices for damaged foreclosures are at their lowest level in over 4 years, due to reduced demand by current and first-time home buyers. Investors have increased their purchase share of these properties, accounting for 65.4% of sales, up from 58% a year ago, according to the survey. Since investors largely buy in bulk, they get bigger discounts.

While home prices continue to surge, they are still 29% below their peak in 2006.

With the all-important spring season knocking on housing’s door, price gains will depend on how many more homes are listed for sale. Demand is already waiting.

U.S. housing starts fall 8.5% in January


The U.S. Department of Commerce reported that construction on new U.S. homes fell 8.5% in January to a seasonally adjusted annual rate of 890,000.

Economists polled by MarketWatch had expected January’s starts to decline to a rate of 914,000 from an original December estimate of 954,000, on Wednesday the government revised December’s starts rate to 973,000.

The housing starts data are volatile from month to month. Looking longer term, starts have increased 24% from a year ago, but remain below a bubble peak of almost 2.3 million in 2006.

Although overall construction on new U.S. homes fell sharply in January, growth continued on a year-over-year basis. Starts for single-family homes increased 20% from the same period in the prior year. Starts for single-family homes ticked up 0.8% to a rate of 613,000, the highest rate since July 2008.

The government also reported Wednesday that building permits, a sign of future demand, rose 1.8% in January to a rate of 925,000 — the highest rate since June 2008. Permits for single-family homes rose 1.9% to a rate of 584,000.

By region, starts dropped 50% in the Midwest and 35% in the Northeast. Meanwhile, starts rose 17% in the West and 4% in the South.

Why Home Builders Won’t Drop New Home Prices


“New home prices have dramatically outpaced existing home prices, and the reason for that is because you have a very constructed mortgage market today. The only people who can buy are people who are very well off, so that’s created a positive mix shift,” noted Barclay’s analyst Stephen Kim in an interview on CNBC’s

Right now the divide between new and existing home prices is wider than ever. The average price of an existing home in December was $231,400, according to the National Association of Realtors, while the U.S. Commerce Department reported the average price of a newly built home stood at $304,000.

“New home prices are advancing faster than existing home prices because demand has increased and, as Kim did admit, the mortgage filter is allowing only higher income or at least higher net worth people through the application net, and they are purchasing higher valued homes. But that is true of existing purchases as well,” argues David Crowe, chief economist for the NAHB.

“Lumber and other building material prices have risen very rapidly recently. Shortages of lots and labor supply are beginning to show up, and I expect as new household formations begin to recover, that shortage will expand to more markets. The way to get more resources back into the housing market is to raise the price paid, i.e., wages and land prices,” says Crowe.

“Builder will have to raise prices to compensate for their efforts, risks and, at least for a short time, being the only ones left,” adds Crowe.

Mortgage Mess Still Mires Housing Recovery


The mortgage rates are rising, now at their highest level since September of last, before the Federal Reserve announced it would buy more agency mortgage-backed securities in order to drive rates down. Last week applications to refinance fell 6% from the previous week, according to the Mortgage Bankers Association.

Mortgage applications to purchase a home dropped more dramatically than did refinances, down 10% from the previous week. While one week does not a trend make, rising mortgage rates, coupled with severe inventory shortages, are not the mix needed for a healthy spring housing market.

Homes selling days on market are shrinking across the nation, but only because supplies are so low. It’s not just the former boom to bust to boom markets.

Rising mortgage rates and tight credit standards keep first time-home buyers out, while falling inventories make it more difficult for existing home buyers to move up. The housing market is therefore still largely in the hands of all-cash investors, looking for distressed properties to buy and then rent out. Ironically, perhaps for now, more distressed properties coming to market will be what keeps home sales afloat.

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