Posted by nithi.vivatrat on August 26, 2009
As has been broadly reported, the S&P/Case-Shiller U.S. national home price index rose nearly 3% in the second quarter compared with the first three months of this year. In the Washington region, prices of previously owned single-family homes rose 2.85% in June over the previous month, the second gain in a row after a 1.3% increase in May.
I wrote previously that we’re still facing further unemployment and foreclosure activity, as well as the end of the first-time buyer tax credit; all of these factors have the potential to take away the gains we are seeing. Specifically to the tax credit issue, Dean Baker, the co-director of the Center for Economic and Policy Research, stated in the LA Times that the tax credit “probably pulled a lot of purchases forward that might not have happened until 2010 or 2011, and that demand’s not going to be there.”
We’ll need to wait until after the tax credit program expires before we can really get a sense of how prices will trend in the “normal state.”
Posted by nithi.vivatrat on August 21, 2009
Bloomberg reported this morning that July sales of existing homes exceeded the forecast to reach the highest level it has been in almost two years.
The Bloomberg News survey of 64 economists had a July median forecast of a 5 million annual rate. The actual sales in July, according to the National Association of Realtors, exceeded this forecast with a 5.24 million annual rate.
Of course, the number of transactions tends to increase as prices fall: the median price of existing homes fell 15%, from $210,100 in July 2008 to $178,400 in July 2009. There is no new concrete evidence of price stabilization, as the supply of previously-owned unsold homes, measured in months, remained unchanged from June at 9.4 months. To this point, I wrote in previous posts about the possible existence of “shadow inventory,” homes whose owners are waiting for signs of economic improvement before putting on the market, which would continue to keep inventory high (and prices depressed).
Other factors to keep in mind: the elevated level of foreclosure activity will likely persist for some time, which will continue to depress prices. In addition, the $8000 first-time homebuyer federal tax credit will not be available for transactions occurring after December 1; first-time homebuyers accounted for 30% of July sales, so the end of the program could also have a negative impact on home sale activity.
Some good news today, but I’m taking it with a grain of salt, given these other long-term factors.
Posted by nithi.vivatrat on August 6, 2009
Amidst the signs being cited as proof of a recovering economy, other data still shows a rough road ahead. Yesterday, CalculatedRisk highlighted two such reports from Deutsche Bank (reported by Bloomberg) and the Wall Street Journal. The Bloomberg report indicates that:
The percentage of properties “underwater” is forecast to rise to 48 percent, or 25 million homes, as property prices drop through the first quarter of 2011, according to [Deutsche Bank] analysts Karen Weaver and Ying Shen.
According to Bloomberg, Deutsche Bank also believes that a large segment of the newly underwater homeowners will be prime borrowers (conforming and jumbo), not subprime or option ARM borrowers as has been the general case thus far.
WSJ reports an increase in the number of homeowners upside-down on their mortgages:
Some 24% of owner-occupied homes had mortgage debt that exceeded the values of those homes at the end of June, according to data from Equifax and Moody’s Economy.com. That number rises to 32% when looking at the share of homeowners with mortgages that don’t have equity left in their homes.
Overall, 16 million homeowners are “upside-down” on their mortgages, up from 10 million, or 15% of owner-occupied homes, one year ago.
Rough times ahead for a lot of homeowners, despite any improvement in the economy.
Posted by nithi.vivatrat on July 31, 2009
My apologies for a long hiatus from blogging. I needed to check out from the online social media world for a little while to handle an intense spike of new client activity in the physical world. I was also out since Saturday on vacation. But I’m back!
While I was out, The Daily Show had this hilarious take (embedded below) on Treasury Secretary Timothy Geithner’s problems selling his own home as proof that Secretary Geithner’s was unqualified for the job — hope you enjoy!
Posted by nithi.vivatrat on June 29, 2009
Gallows humor from Dilbert, in case you missed it last week:
(ht CalculatedRisk, ShortCourage)
Posted by nithi.vivatrat on June 25, 2009
I’ve always felt that a balloon was a better analogy than a bubble (in no way am I claiming to be the first) to describe an economic contraction in a particular sector or area, such as housing or consumer spending. It’s not that the market in question “pops” and disappears — it just deflates to a different size after the “air” get sucked out.
The lost “air” in our economy was inflated consumer spending fueled by borrowing — borrowing largely leveraged against rising housing prices. Thus, as housing prices have fallen, consumer spending has dropped as well — causing this significant contraction of our economy. If you don’t believe me, see today’s post by Atif Mian and Amir Sufi of the University of Chicago Booth School of Business in WSJ Real Time Economics (thanks to CalculatedRisk for highlighting the post). A key finding:
Using this methodology, we find striking results: from 2002 to 2006, homeowners borrowed $0.25 to $0.30 for every $1 increase in their home equity. Our microeconomic estimates suggest a large macroeconomic impact: withdrawals of home equity by households accounted for 2.3% of GDP each year from 2002 to 2006.
WAIT! There is more to read… read on »
Posted by nithi.vivatrat on June 11, 2009
CalculatedRisk reports how an economic turnaround NEED NOT be immediately accompanied by increased hiring. This will continue to be a drag on housing prices and transaction velocity. When people don’t have jobs or are still afraid of losing them, they will be less likely to buy a home even when mortgage rates are low. Lenders will also be skittish in a poor job market. In addition, a lack of improvement in the job market will also cause foreclosures to persist as a problem. My opinion: wait for the hiring trend to improve before we see a sustained improvement in housing prices and transaction velocity.
Posted by nithi.vivatrat on March 31, 2009
Columbia University’s Edmund Phelps was on American Public Media’s Marketplace last week contending that we rethink our national obsession with home ownership.
I listened to this after having recently read David Kamp’s fascinating piece in April’s Vanity Fair titled “Rethinking the American Dream.”
Both pieces are very thought-provoking. I do think there is something disconcerting about the American Dream somehow becoming synonymous with home ownership (it wasn’t always like that), and I do have concerns about the many aspects of our government policy that encourage this mindset. To me, it is undeniable that the mortgage interest deduction played at least some role in the housing bubble run-up.
While I do believe that home ownership and renting should be theoretically economically equivalent over the long run, there are some intangible attributes to home ownership (pride of ownership and emotional investment to neighborhood development and care among them) that cannot be ignored. Anyway, the spirited back-and-forth in the comment section of the Marketplace piece is as interesting as the Phelps interview itself. Hope you find this interesting as well.
Posted by nithi.vivatrat on March 10, 2009
When talking to people about SmithAdams, the first question I frequently get is this: “You’re starting a real estate business in this economy? What are you thinking?”
Paul Graham, essayist, partner at Y Combinator, and all-around renaissance man, explains, in much more eloquent language than I can muster, that this is the perfect time to start a new company. This point is especially relevant for SmithAdams:
“That doesn’t mean you can ignore the economy. Both customers and investors will be feeling pinched. It’s not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Startups often make things cheaper, so in that respect they’re better positioned to prosper in a recession than big companies.”
That’s precisely what I’m setting out to do. SmithAdams fee-for-service model can save consumers money. In this housing market, I think any of us would benefit from real estate transactions being more efficient and less costly.
To this point, I believe potential customers are more likely to be open to new ways of doing business in times like these. During the recent flush years when real estate property values were skyrocketing and homes were sold in a weekend, few questioned the wisdom of paying a 3% (one-sided) commission on property transactions — a commission that often translated into thousands of dollars. With the realty market in disarray, the SmithAdams value proposition has resonated strongly with almost everyone to whom I have spoken about our company.
Now is the time to apply the simplicity and straightforwardness of a fee-for-service model, similar to other professional services industries, to the business of real estate. Despite new technology and other changes in the real estate marketplace, the commission-based fee model has not evolved in decades. The bursting of the housing bubble presents an ideal time to reevaluate current real estate practices. Now is the time to start SmithAdams.
I welcome your comments and feedback.
Posted by nithi.vivatrat on March 2, 2009
Two key indicators were issued last week - the S&P/Case-Shiller national home price index and the Conference Board’s Consumer Confidence Index. Both appear grim. The S&P/Case-Shiller index set a new record for the largest one-year drop in its 21-year history, dipping 18.5% over the 12 months ending in December 2008. The Consumer Confidence Index fell to an all-time low to 25.0 (1985=100), plummeting from 37.4 in January. WAIT! There is more to read… read on »
