Monday, May 31, 2010

Florida Home Sales Increase +27% in April

"Sales of existing homes in Florida rose 27% in April, which means that sales activity has increased in the year-to-year comparison for 20 months, according to the latest housing data released by Florida Realtors. Another positive sign: Last month's statewide existing-home median price of $140,100 was 1 percent higher than the statewide median price in April 2009.

Existing home sales rose 27% last month with a total of 16,781 homes sold statewide compared to 13,244 homes sold in April 2009 (see chart). Statewide existing home sales last month increased nearly 3 percent over statewide sales activity in March. Meanwhile, April's statewide existing-home median price was 2.3% higher than March's statewide existing-home median price of $137,000. It marks the second month in a row that the statewide existing-home median price has increased over the previous month's median."

MP: Assuming the median home price in Florida is not too different from the mean home price, the total housing sales volume in the state increased from about $1.84 billion in April 2009 to about $2.35 billion in April 2010, for almost a 28% increase. If we measured housing market activity like we measured vehicle sales - in unit sales, without regard to price - we would conclude that the Florida housing market is booming, with 20 consecutive monthly increases compared to the same month in the previous year, and a whopping 27% increase from April of last year. And if we measured housing activity like we measure retail sales (total sales volume), we would also conclude that the Florida housing market is doing quite well, with something like a 28% increase in sales volume (assuming the median home price is an accurate estimate of the mean home price) in April compared to last year.

28 Comments:

At 5/31/2010 9:32 AM, Anonymous morganovich said...

april was a huge month for purchase incentives as buyers rushed to take advantage before they ended.

i have no may data for florida yet, but may has been a terrible month in pheonix and Las vegas, the other 2 markets you cited.

florida may behave in a similar fashion.

 
At 5/31/2010 9:40 AM, Blogger VangelV said...

I think that an objective observer would have a hard time seeing the Florida numbers as a positive. First, the numbers are helped by the expiring home buyer tax credit and exceptionally low mortgage rates. If the economy were to begin recovering the rising rates would drive sales lower once again, particularly when the government will not be bribing buyers into purchasing homes that they would otherwise not be buying.

Then we have the inventory issue. What is not being said is there is a growth of inventory since the October 2009 bottom. We also know that the banks are sitting on many units that they would like to dump as soon as conditions improve. At the moment, the banks are not foreclosing on units because they do not wish to spook the market and create expectations that a growing inventory of foreclosed properties stands ready to keep prices low for quite some time to come.

Sorry Mark but things are not exactly as they are being spun to look. At best we are looking for a bottom that will last for quite some time. While the data may be enough to keep the pessimists in retreat, it is not good enough to fuel optimism among objective observers.

 
At 5/31/2010 10:27 AM, Blogger VangelV said...

I forgot to add the following link. I do not think that anyone can be optimistic about Florida real estate after looking at the chart.

http://tinyurl.com/382w7co

 
At 5/31/2010 11:28 AM, Anonymous Anonymous said...

yep, florida real estate is hot...

http://www.financialpost.com/news-sectors/story.html?id=3037457

when the details of this deal came out it was said that TD probably could not even BUILD the buildings for what they paid for these banks

 
At 5/31/2010 2:44 PM, Blogger Bill said...

Vangel: If the Florida real estate recovery has not begun, at what point will you say it has? Please give us some criteria to show us that you are not simply being pessimistic.

Also, by the time the delinquency rates are back to normal it will be long past the time that the recovery began. The point is, to paraphrase Churchill, that this is not the beginning of the end but it is perhaps the end of the beginning.

 
At 5/31/2010 5:55 PM, Blogger Bruce Hall said...

May may be a disappointment for those seeking positive reinforcement.

An anecdote: my daughter-in-law's brother was rushing to complete a home purchase. All was set. Then the real estate agent failed to get the paperwork filed in time for the brother to get the tax credit. Deal off.

Despite low sales prices, buyers are just barely qualifying and then stretched themselves to get the tax credit. With that gone, the rush to buy is gone.

 
At 5/31/2010 6:36 PM, Blogger VangelV said...

If the Florida real estate recovery has not begun, at what point will you say it has? Please give us some criteria to show us that you are not simply being pessimistic.

When delinquent mortgages are running at much lower rates than they are now.

http://www.doctorhousingbubble.com/wp-content/uploads/2010/05/MBAQ1State.jpg

Also, by the time the delinquency rates are back to normal it will be long past the time that the recovery began. The point is, to paraphrase Churchill, that this is not the beginning of the end but it is perhaps the end of the beginning

You need a recovery in the real economy to have anything positive. I am not seeing anything that indicates that such a recovery is under way. A 20% delinquency rate is very bad and unlikely to recover unless the Fed destroys the currency. While that would cause nominal prices to go up it would not be a good thing for Americans.

 
At 5/31/2010 6:38 PM, Blogger VangelV said...

Despite low sales prices, buyers are just barely qualifying and then stretched themselves to get the tax credit. With that gone, the rush to buy is gone.

The Fed is trapped and will inflate the money supply again, probably before the election. Florida real estate is in bad shape because there was a bubble that needs to be corrected.

 
At 5/31/2010 8:55 PM, Blogger Bill said...

Vangel: "When delinquent mortgages are running at much lower rates than they are now."

I am sorry but I need you to be much more precise than this. What level of delinquency signals a market recovery to you? Please advise us as to your position.

Please also remember that the delinquency rates nationally vary from 20% in Florida to under 5% in North Dakota. So, a national real estate recovery may be happening while some areas such as Florida, lag the nation.

 
At 5/31/2010 9:24 PM, Blogger VangelV said...

I am sorry but I need you to be much more precise than this. What level of delinquency signals a market recovery to you? Please advise us as to your position.

A lot less than 20%. I would feel a lot more comfortable at 2.5% and falling.

My points are simple enough.

First, we have about 25% of mortgages not performing. There is no way to spin that as good news.

Second, the sales numbers are helped by a government subsidy that makes it easier to buy real estate and historically low rates, which signal tough times economically. If the economy picks up sales will decline because rates will go up and houses will not be as affordable to people looking for second and third homes. (Most people who want a home and can afford it already have one.)

Third, the real economy is not in good shape. The government has grown to a record high and is squeezing out private industry. Savers are giving up and are beginning to look to diversify their holdings in order to protect themselves from the easy money policies that will destroy their purchasing power over the long run. Workers are finding that their dreams of early retirement have been crushed and that their homes could lose value in both real and nominal terms.

Please also remember that the delinquency rates nationally vary from 20% in Florida to under 5% in North Dakota. So, a national real estate recovery may be happening while some areas such as Florida, lag the nation.

Places that never saw a boom had affordable homes so they are expected to be in good shape. But I would not spin 5% default rates as good news because it isn't.

 
At 5/31/2010 10:26 PM, Blogger Bill said...

Vangel: Apparently, the data disagrees with you in that the default rate is improving. While things are certainly bad now, they are clearly better than at the height of the crisis in 2007-2008. Read more here:

"The risk of borrowers defaulting on their mortgages today is much less than in 2006 to 2008, but it will take at least five years for risk to return to pre-bubble levels, a leading expert on default risk told Real Estate Economy Watch.

“We expect continuing improvement. Risk levels should be lower on newly originated mortgages next year barring a “double dip” recession,” said Dennis Capozza, the Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan, and a founding principal of University Financial Associates, which created and publishes the UFA Default Index.

Local economic conditions that have been building for a decade, not underwriting or moral hazard, are the primary driver or defaults. ”Although declines usually happen faster than increases, it will still take many years to return to “normal” prices. We are not there yet,” Capozza said.

Yesterday UFA said the UFA Default Risk has dropped to 182 in the second quarter, half the peak level of 362 set in 2007. The Index illustrates the important role that local economic conditions have played in this credit cycle, since loan, borrower and collateral characteristics are held constant over time in the Index. If, as some observers expect, inflation spikes due to excessive monetary ease, nominal house prices will be higher and defaults will be lower.

Under current economic conditions, investors and lenders should expect defaults on loans currently being originated to be 82 percent higher than the average of loans originated in the 1990s, but much less than the worst vintages of this cycle (2006-2008).

Strategic defaults, which Capozza said have always been a risk for investors when house prices decline precipitously, are already factored into the UFA forecast, which predicts declining foreclosures started; so he does not expect strategic defaults to increase default risks.

The UFA Default Risk Index measures the risk of default on newly originated prime and nonprime mortgages. UFA’s analysis is based on a “constant-quality” loan, that is, a loan with the same borrower, loan and collateral characteristics. The Index reflects only the changes in current and expected future economic conditions, which are much less favorable currently than in prior years."
http://www.realestateeconomywatch.com/2010/05/restoring-default-risk-to-pre-bubble-levels-will-take-five-years/

Again, no one is saying that we have a totally healed real estate market. What I am saying is that there are clear signs of improvement and we are headed in that direction.

 
At 5/31/2010 11:33 PM, Anonymous Anonymous said...

Slightly OT Dr. Perry, but is there any information available as to how much of the housing sales in Florida are a result of people whom have left high tax states like New York for low tax states like Florida? What about Arizona, Nevada, Colorado, and Washington state home sales vis-a-vis California?

 
At 6/01/2010 7:38 AM, Blogger VangelV said...

..Apparently, the data disagrees with you in that the default rate is improving. While things are certainly bad now, they are clearly better than at the height of the crisis in 2007-2008. Read more here:

"The risk of borrowers defaulting on their mortgages today is much less than in 2006 to 2008, but it will take at least five years for risk to return to pre-bubble levels, a leading expert on default risk told Real Estate Economy Watch....


I am sorry but I prefer to believe what I observe rather than appeal to 'experts' who never saw the bubble in the first place and have been wrong all along the way. The most recent data is showing a flood of cancellations as the federal tax credit for purchasing homes expires. In the absence of sales momentum the price increase will not continue and many people will choose to default rather than service their debt.

http://tinyurl.com/24hz393

Let me be clear in my assessment. I think that it is easy to see a recovery in the nominal price by having the federal government provide new tax credits or the Fed flood the system with liquidity. That would allow real prices to plunge but nominal prices to increase, a process that could allow many borrowers to repay what they owe with money that is of much lower purchasing power than when they took out the loans. But any such 'victory' for borrowers will be a terrible loss for the currency and for savers.

 
At 6/01/2010 8:48 AM, Blogger Bill said...

Vangel: "I am sorry but I prefer to believe what I observe rather than appeal to 'experts' who never saw the bubble in the first place and have been wrong all along the way."

Translation: I am a perma-bear and refuse to acknowledge that the real estate market might be improving.

And, how do you know that this expert (Dennis Capozza, the Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan) "never saw the bubble in the first place"? Can you please provide some evidence to support this accusation.

BTW, a recovery by means of inflation may indeed be in the cards but this is still a recovery. In fact, the majority of housing price appreciation over the years is due to inflation. So, you are simply stating the obvious here.

 
At 6/01/2010 11:50 AM, Anonymous Anonymous said...

The risk of borrowers defaulting on their mortgages today is much less than in 2006 to 2008

That's bullshit, Bill.

Read the MBA delinquency report and the Federal Reserve delinquency rates.

“Often when we begin to ask ‘How bad can things get?’ we are nearing a turning point in the cycle. This appears to be the case with mortgage defaults this quarter [2009Q2],” says Dennis Capozza, professor of finance with the Ross School of Business at the University of Michigan

Clearly the UFA Index needs some fine-tuning or it is a cash for clunker candidate.

I don't have any issues with permabulls that subscribe to the Cherry Perry Picker School of Economics. But bring some data to the table before your head lands on it.

 
At 6/01/2010 11:51 AM, Anonymous morganovich said...

"BTW, a recovery by means of inflation may indeed be in the cards but this is still a recovery."

no, it's not. inflation is not recovery. no real wealth is created. sure, it may redistribute some (by lessening borrower burdens in real terms while squeezing banks), but that's not recovery, just a shifting of the losses in real terms.

there's a reason they report "real GDP" not nominal.

there's also a reason why so many people are concerned about the alteration in CPI calculation lowering readings and boosting apparent real growth.

inflation is also a tax on savings. it's a terribly way to get out of a national financial hole.

it punishes the virtuous and benefits the over levered.

 
At 6/01/2010 1:54 PM, Blogger Bill said...

Anonymous: You appear to be very angry. There is no need for that.

As for your post, had you fully read the cited piece, you would have seen that the default rate to which I referred was for loans being originated now, not on loans originated in the past. The point is that there are a lot of old toxic loans still out there but loans being originated now are much less likely to default. And, going forward, this is a net positive for the real estate market. Get it now?

morganovich: I agree that inflation is not generally a positive thing but it happens almost always as a result of our fiat currency and, in a real estate context, it causes equity to be created (albeit in less valuable dollars) and makes loan defaults less likely and less painful for the lenders.

 
At 6/01/2010 2:02 PM, Blogger Bill said...

Oh and let me state that I am not a real estate permabull. It is amusing to me however that, whenever I mention positive real estate news or bring up the possibility of a real estate recovery, I hear shrieks from the peanut gallery. I seem to recall a similar reaction in 2005 when I told people that real estate could not continue its upward trajectory indefinitely. People just get used to current market conditions and extrapolate these into the future ad infinitum and this is simply not the way things work.

 
At 6/01/2010 2:34 PM, Anonymous morganovich said...

bill-

no net equity is created in real estate by inflation. it's just transferred from lenders to borrowers with the highly undesirable side effect of punishing savers across the economy.

 
At 6/01/2010 3:07 PM, Blogger VangelV said...

Translation: I am a perma-bear and refuse to acknowledge that the real estate market might be improving.

No. I do not accept a slight increase in sales and prices when the market is driven by expiring tax credits as an improvement, particularly when I am looking at 20%+ nonperforming mortgages.

And, how do you know that this expert (Dennis Capozza, the Dykema Professor of Business Administration in the Ross School of Business at the University of Michigan) "never saw the bubble in the first place"? Can you please provide some evidence to support this accusation.

What I know is that the people who were given air time were the optimists and that they never warned the public about the obvious bubble. (I am giving them the benefit of doubt by claiming that they never saw it coming. If they did and still made those statements they would be liars.)

BTW, a recovery by means of inflation may indeed be in the cards but this is still a recovery. In fact, the majority of housing price appreciation over the years is due to inflation. So, you are simply stating the obvious here.

Actually, a nominal price increase may help people to reduce their debt loads for a while. But the cost is a much higher cost of living that will likely cause them to lose their overpriced homes. When the amount of money needed to pay for heating, maintenance, water, electricity, food and taxes rises people will suffer. The Zimbabwe model may help some smart people who have used expectations of inflation as part of their strategy but it will not help ordinary people who simply go with the flow and do what everyone else does.

 
At 6/01/2010 3:30 PM, Blogger VangelV said...

As for your post, had you fully read the cited piece, you would have seen that the default rate to which I referred was for loans being originated now, not on loans originated in the past.

The opinion is very speculative and not supported by empirical evidence of any kind. I would argue that the defaults of old mortgages would add supply to the market that could drive prices below the loan amount outstanding on new purchases. There is an assumption that the employment situation will improve and that there will be no new stresses on the income side. I see no evidence at this time to support such an assumption.


The point is that there are a lot of old toxic loans still out there but loans being originated now are much less likely to default. And, going forward, this is a net positive for the real estate market. Get it now?

Obviously it is you who does not get it. Until the old mortgage issues are resolved and the foreclosed houses are cleared in the markets we will not know if the new mortgages will hold up. And until the US labour picture clears up and shows positive moves there is no way to argue that there wages are supporting the real estate market.

I agree that inflation is not generally a positive thing but it happens almost always as a result of our fiat currency and, in a real estate context, it causes equity to be created (albeit in less valuable dollars) and makes loan defaults less likely and less painful for the lenders.

You seem to assume that the inflation process will run as it did in the 1970s. I do not believe that will be true. This time around the inflation may end with the death of the fiat currency itself. That will not help savers or the freeloaders who had hoped that they could gain 'equity' thanks to the printing press.

 
At 6/01/2010 6:02 PM, Blogger grant said...

Excellent that we now have this many sold homes of the sales inventory and fewer distressed sellers make it that much closer to a long term recovery.

 
At 6/01/2010 6:13 PM, Blogger grant said...

Vangel1V:
Bob Siller was seen on TV everywhere warning that real estate sale prices followed the long term trend. He produced charts to show that high real estate sale prices would most likely fall to the long term price trend.

 
At 6/01/2010 9:20 PM, Blogger VangelV said...

Excellent that we now have this many sold homes of the sales inventory and fewer distressed sellers make it that much closer to a long term recovery.

Inventory is rising and sales have just fallen off a cliff with the expiration of the tax credits. More than one in five mortgages is in trouble. How is that good news again.

 
At 6/01/2010 9:31 PM, Blogger VangelV said...

Bob Siller was seen on TV everywhere warning that real estate sale prices followed the long term trend. He produced charts to show that high real estate sale prices would most likely fall to the long term price trend.

Most of the Austrian School economists pointed to a housing bubble when the real estate industry and the media were hyping housing as a sure bet. Jeremy Grantham wrote a wonderful piece on hosing bubbles in the English speaking world. Marc Faber and Jim Rogers warned about bubbles in US real estate and US stocks. Few people listened and the financial media ignored their warnings.

 
At 6/01/2010 10:53 PM, Blogger Bill said...

Vangel: For some reason, you continue to lie by stating that "more than one in five mortgages is in trouble". However, the very chart you cited shows that more than 20% of mortgages are delinquent in just 2 states - Florida and Nevada. Nationally, 11.29% of residential mortgages are in some form of default at present.
http://www.federalreserve.gov/releases/chargeoff/delallsa.htm

This is not great but it is nearly half of what you claimed. Going forward, please be honest with us.

 
At 6/01/2010 10:58 PM, Blogger VangelV said...

Vangel: For some reason, you continue to lie by stating that "more than one in five mortgages is in trouble". However, the very chart you cited shows that more than 20% of mortgages are delinquent in just 2 states - Florida and Nevada. Nationally, 11.29% of residential mortgages are in some form of default at present.

This is a post about Florida and in Florida, 1 in 5 mortgages are in trouble.

How can any rational being believe that a national default rate of 11% is positive?

 
At 6/07/2010 1:37 PM, Blogger VangelV said...

I found this interesting chart from Bianco Research via Barry Ritholtz. It tells us what we need to know about the housing market.

http://tinyurl.com/2b6cwar

Where exactly is the sign of a housing recovery?

 

Post a Comment

Links to this post:

Create a Link

<< Home