Tuesday, May 22, 2012

Home Prices Increase in April by 10.1%, The Largest Yearly Gain in More Than Six Years

The National Association of Realtors (NAR) reported today on existing-home sales in April with the following highlights:

1. Total existing-home sales (single-family homes, townhomes, condominiums and co-ops) increased 3.4 percent to a seasonally adjusted annual rate of 4.62 million in April from a downwardly revised 4.47 million in March.

2. April home sales this year of 4.62 million were 10% higher than the 4.20 million units in April 2011.

3.  The national median existing-home price jumped 10.1% to $177,400 in April from a year ago; the March price showed an upwardly revised 3.1% gain from a year earlier.

“This is the first time we’ve had back-to-back price increases from a year earlier since June and July of 2010 when the gains were less than one percent,” NAR chief economist Lawrence Yun said.  “For the year we’re looking for a modest overall price gain of 1.0 to 2.0 percent, with stronger improvement in 2013.”

4.  The 10.1% median price increase in April was the biggest year-to-year gain since January 2006 and reflected a seasonal mix in demand toward bigger houses and fewer distressed sales. 

Bottom Line: The housing recovery is underway.  

26 Comments:

At 5/22/2012 10:03 AM, Blogger Jon Murphy said...

According to realitytrac.com, the number of homes in the foreclosure process has been falling, too. This should help housing prices going forward.

 
At 5/22/2012 10:18 AM, Blogger Buddy R Pacifico said...

"Home Prices Increase in April by 10.1%."

Later on in the paragraph, from which this quote is taken, it states:

“For the year we’re looking for a modest overall price gain of 1.0 to 2.0 percent, with stronger improvement in 2013.”

The residential market is certainly very good, but there is lots of inventory to work through. The economy is going to have to accelerate to drive prices up 10% overall.

 
At 5/22/2012 10:46 AM, Blogger Luther for Liberty said...

The recovery (correction) happened in 08-09. What we're seeing now is the re-inflating of another speculative bubble due to currency manipulation.

 
At 5/22/2012 10:54 AM, Blogger morganovich said...

since mark pointed out the big role of the FHA loans to me the other day, i have been taking a close look at them.

they are 30-40% of many urban areas lending. they were 38% of ALL purchase mortgages in 2010.

they have rates like 2.3%, require only 3.5-5% down, and can have values up to $729k.

they focus on first time buyers with little credit history.

they are also a total disaster.

default rates on the 2009 vintages are already over 9%. 31% of all FHA loans are underwater (negative equity) including almost all of them since 2009.

these loans are among the worst performing mortgages ever issued.

to the extent this is driving the housing rebound, then this is just massive subsidy and pork, and will leave taxpayers once more holding the bag for the federal obsession with homeownership and a new generation of owners upside down or in default.

i have no idea how to quantify the effect of fha lending on the housing market, but certainly would not put it past the current administration to use such a program to buy votes and have some real concerns about how this winds up.

massive federal subsidy is not a healthy basis for recovery.

 
At 5/22/2012 11:08 AM, Blogger Jon Murphy said...

Not that I want to sound like I'm downplaying your comments, Luther and Morganovoch, but I wonder: have we been trained to see any growth in prices now as a "bubble"?

 
At 5/22/2012 11:17 AM, Blogger Pulverized Concepts said...

Why would we be happy about higher home prices? We're not happy about higher gasoline prices. Or egg prices. Or the price of wool blankets. Or corn. Unless we're selling people those things. I don't have a house for sale. I want them to be cheaper yet. Then maybe I'll buy one.

 
At 5/22/2012 11:37 AM, Blogger morganovich said...

jon-

not at all.

i would not describe this as a bubble. i'd describe it as bad lending and federal subsidy. i might even go so far as to call it vote buying and deliberate market manipulation for political gain, but i'm not sure where you get "bubble" from my comments.

 
At 5/22/2012 11:41 AM, Blogger morganovich said...

pc-

because, unlike the other things you named, housing is viewed as an investment.

why are we happy when stocks rise? same reason.

it makes us wealthier.

even now, the majority of american households are homeowners.

so sure, there is no real reason you should get excited if you do not own one (apart from possible benefit to the economy as a whole by freeing up assets and enhancing wealth), but if you buy a house with a mortgage you NEED price appreciation or you have a seriously wasting asset on your hands.

 
At 5/22/2012 12:03 PM, Blogger Pulverized Concepts said...

Maybe housing shouldn't be viewed as an investment. Maybe it should be viewed as a place to live, that requires upkeep and maintenance and eventually falls down.

why are we happy when stocks rise? same reason.

it makes us wealthier.


When all stocks rise, are all companies and stockholders wealthier or is that inflation? Or is it a bubble? Shouldn't an increase in the price of a stock be indicative of an actual increase in earnings or at least the prospect of such? More real wealth? If my property increases in price 20%, am I 20% wealthier? Looks like, according to you, all we have to do is get prices up and we'll all be rich!

 
At 5/22/2012 12:15 PM, Blogger Pulverized Concepts said...

if you buy a house with a mortgage you NEED price appreciation or you have a seriously wasting asset on your hands.

When I have a mortgage, I'm borrowing money to pay for property. The entity loaning that money is foregoing consumption and being reimbursed for that deferred consumption through the payment of interest. Since he has the money and we expect the property to appreciate in value, why does he essentially buy the property (which is what he does) and then sell it to me for payments plus interest? Why doesn't he just keep the property, which, according to you, should increase in value by more than the combined purchase price and interest? Huh?

 
At 5/22/2012 12:16 PM, Blogger Jon Murphy said...

Morganovich-

My mistake. I had read too much into your comment.

 
At 5/22/2012 12:23 PM, Blogger morganovich said...

"Maybe housing shouldn't be viewed as an investment. Maybe it should be viewed as a place to live, that requires upkeep and maintenance and eventually falls down."

it's both.

it's the single largest purchase most people make. it's also the greatest amount of leverage that most people ever have access to.

ask your stockbroker for 5 or 10:1 leverage and see what he says.

as the leverage is very high, end results of price moves get amplifies.

put 10% down and lose 10% in price, and you lose 100% of equity.

it's the largest piece of financial exposure most families have. it's hardly surprising that so many of them view price increases there as good news.

don't get me wrong, i think levered real estate is a terrible way to save and invest. over 30 years almost everyone loses money on their house, they just don;t know it. 6% mortgage, 1% taxes, 1%ish maintenance, you're 8% behind every year (maybe 7% accounting for downpayment).

if your house does not double in price every 10 years a 7% nut means you lose money. and as we have just seen, the leverage can be a real killer if prices drop.

i'm not advocating using a home as an investment, just pointing out that if you own one, you'd like to see it go up in price and homeowners still outnumber renters by more than 3:2.

your comment on stocks is so broad as to be meaningless and largely misses the point. stocks can go up for lots of reasons among them inflation, earnings growth, and valuation ratios.

so what?

for any given level of inflation, you are better off with a higher stock price than a lower one. inflation may lessen real returns, but you are always better off with a higher price than a low one.

p/e ratios vary based on lots of things including projected growth rates and yields on debt. that is to be expected. again, so what? you are better off with higher prices. you then erect this absurd straw man that only prices matter and again totally miss the point.

for any given level of inflation, a 20% stock gain is better than 0%. you wind up richer.

if that gain is greater than inflation, you get real wealth, if less, you lose real wealth, but either way, 20% is better than zero.

inflation alone cannot make us richer (though it does redistribute wealth from savers to borrowers). if that's what you're driving at, then i think that's incredibly obvious. no one argues that.

i think your have your arguments all twisted and are dramatically mischaracterizing mine. hopefully, the above helps.

 
At 5/22/2012 12:29 PM, Blogger Broll The American said...

I see this as a correction and don't believe this trend will continue, nor will a new bubble be generated. The next generation of home buyers are saddled with student loan debt. Prices will flatten out and remain there for years.

 
At 5/22/2012 12:33 PM, Blogger morganovich said...

"
When I have a mortgage, I'm borrowing money to pay for property. The entity loaning that money is foregoing consumption and being reimbursed for that deferred consumption through the payment of interest. Since he has the money and we expect the property to appreciate in value, why does he essentially buy the property (which is what he does) and then sell it to me for payments plus interest? Why doesn't he just keep the property, which, according to you, should increase in value by more than the combined purchase price and interest? Huh?"

this is a tangled mess of misunderstandings.

sure, a mortgage is a saver forgoing consumption to lend for a rate of return. but the saver does NOT buy the property. they lend money. they do not own the property unless there is a default. they have no access to it nor gain from appreciation. they have no risk in many cases due to guarantees etc or if they do, it is again, only in default.

this is totally different from keeping the property. your huh? makes you seem belligerent about this idea, but your notion itself is completely wrong.

the saver decides that x% interest is a good risk and acceptable compensation for forgoing consumption given a specific lender and loan profile. that's his bet.

the borrower bets that x% interest is a good price for money to accelerate his own consumption and expects that by doing Y he gets a return about x.

that's a VERY different bet and the latter is considerably riskier but also more potentially lucrative.

i have no idea what you are even trying to say at the end of this.

in most cases, property appreciation has NOT kept up with interest. that was my whole point.

but, owning a home saves you from paying rent as well and provides security and the ability to renovate etc which also has value. even if you lose money on your home, it can still be less than you would have lost by paying rent. you keep trying to reduce these situations to too few variables and trying to mischaraterize what i am saying.

are you doing that as provocation or do you really just not understand this?

 
At 5/22/2012 12:36 PM, Blogger morganovich said...

that should read "above x" not "about x"

 
At 5/22/2012 12:41 PM, Blogger PeakTrader said...

Morganovich says: "levered real estate is a terrible way to save and invest. over 30 years almost everyone loses money on their house."

So, you believe, people should save $200,000 for a house first, while living in a cheap apartment for 30 years, and then when they saved the $200,000, the house rose from $200,000 to $500,000?

 
At 5/22/2012 12:45 PM, Blogger Pulverized Concepts said...

a mortgage is a saver forgoing consumption to lend for a rate of return. but the saver does NOT buy the property.

Then where does the previous owner of the property get the sale price? The mortgagee pays him for the property, which is then collateral for the mortgage and is foreclosed upon by the mortgagee if payments aren't made. The buyer doesn't own the house until the mortgage is paid off.

 
At 5/22/2012 12:51 PM, Blogger PeakTrader said...

The same can be said about education.

Would you rather borrow $100,000 to get a good education by the time you're 25, or save $100,000 to get the good education by the time you're 45 (although, it may cost $200,000 by then).

 
At 5/22/2012 12:54 PM, Blogger PeakTrader said...

One of the problems in the housing market, besides high unemployment or massive idle resources (including in homebuilding), is not enough lending.

 
At 5/22/2012 1:43 PM, Blogger morganovich said...

peak-

"So, you believe, people should save $200,000 for a house first, while living in a cheap apartment for 30 years, and then when they saved the $200,000, the house rose from $200,000 to $500,000?"

no, that's not what i said at all. what i said is you are likely to spend more on your house and it's financing than you get back when you sell it. thus, as an asset class, it's not a great investment.

if you took the money the indians got for manhattan and put it in bonds from then to now, you'd have enough cash to buy all of ny state and every building on it.

this doe not, however, mean that owning a home with a mortage is a bad idea. let's say you buy a $1 million home at 5% interest with an I/O loan. you spend 1% a year on tax, 1% on upkeep. thus, you drop 7% a year in costs. let's say the market goes up 4% a year.

so, in 10 years, your house is worth $1.48 million. over that time, you have paid out $700k in interest and costs. so, you lost about 200k.

however, if you had rented, it would have likely cost you more than that. $200k / 120 months is $1666/month. not many million dollar homes rent for that. so, even though you lost money, you are still ahead of where you would have been renting, likely by several 100k.

this gets much more complex if you add a downpayment because while it drops the overall costs, it also imposes opportunity costs.

buying for cash is the same way. it makes it far more likely that you will make money on the house, but ties up far more cash that could be used elsewhere to make money. forgoing 8% equity returns for 4% housing returns is a serious opportunity cost. you might have been better off with a stock portfolio and a mortgage depending on rates etc.

it's a really complex question what the best course is and it has to take into account preferences like stability, security, customization etc.

 
At 5/22/2012 1:54 PM, Blogger morganovich said...

"Then where does the previous owner of the property get the sale price?"

let's say you have $1 million in savings.

you put it in a bank.

that bank lends it to me to buy a 1.2 million home. i put in 200k.

so, you, the saver have a credit. the bank pays you some interest rate x. you have absolutely no risk from me. the bank is fdic insured and pays for that. you agree to a low return for no risk and also agree to let the bank lend you money in exchange for that interest.

they lend to me. they do have some risk form me. if i do not pay, they may have to take the house. they mitigate this risk by lending less than the house is worth. this is why appraisal is a part of every mortgage ap. they do not own it now. they cannot come in, sell it, paint it, or make me cut my lawn. so long as i pay, they have no rights to the house at all. they get higher interest that you, the depositor, because they take more risk. they live on the spread.

i, the buyer, DO in fact own the house. i hold title and can do with the house as i like, including tearing it down to build a new one. i do not need the banks nor the depositor's permission to do this. a change in ownership can ONLY occur through my voluntary sale or foreclosure and foreclosure only occurs if i severely breach my contract.

the house being up as collateral for a loan does not mean that i do not own it or that the bank does. i face the risks and rewards of property ownership. it does mean that if i sell it, they need to be repaid first, but that's contractual obligation, not ownership.

i think you are a bit confused as to what the term "owns" means in a legal sense.

you own a house even with a mortgage, it just has some encumbrances.

 
At 5/22/2012 1:59 PM, Blogger morganovich said...

peak-

education is an investment with opportunity costs like any other.

i think i got my money's worth and that it was an excellent investment.

i think many do not. running up $250k in debt to get a degree in french lit does not sound like a great investment to me.

like so many things, it depend on what you use it for (ROIC), opportunity cost, etc.

judging the worth of an education is particularly difficult as who knows what jobs might or might not have been available if you went to harvard vs umass or what you might have learned that made you life richer or the people you might have met etc etc.

thats a really tough one.

 
At 5/22/2012 2:04 PM, Blogger morganovich said...

pc-

regarding ownership, think of it this way:

if a huge icicle falls from my house (mortgaged) and land on you, breaking your leg you can sue the owner.

that's me, not the bank. in a world where banks owned the houses, you could sue them if you slipped and fell on ice on your own walk.

i understand your issue about a mortageee having obligations to the banks, but that is not the same as ownership.

 
At 5/22/2012 2:34 PM, Blogger Pulverized Concepts said...

The mortgagee is the entity loaning the money.

Everyone involved in the housing business, carpenters, builders, realtors, title insurance companies, municipalities that levy property taxes, companies that write mortgages, even home buyers, are like to see property prices rise. They all make more money. Unfortunately, the escalator can't go up forever, at some point the price of tulip bulbs, ostrich feathers, and, yes, 2 bedroom ranch homes in Gardena, CA have to peak. And then go down. That's just the way it is.

 
At 5/22/2012 3:48 PM, Blogger morganovich said...

pc-

home prices largely mirror inflation. that is true. in real terms prices do not rise much.

however, as a borrower, inflation is a wealth transfer to you and away from the lender.

the money you borrowed drops in value every year.

nominally, the escalator can rise forever so long as there is continued inflation driven by money supply expansion. it can exceed inflation and provide real gains if there are population pressures. you see this in the very expensive markets like manhattan and san francisco where there is no new space and lots of people want to live, perhaps because jobs have rising real wages due to productivity gains.

this notion that the escalator has to have a top is simply untrue.

nominally, it can run endlessly so long as you print money.

in real terms, it can rise with productivity increases and due to limited supply in the areas that are the best places to take advantage of such gains.

 
At 5/22/2012 4:36 PM, Blogger VangelV said...

Bottom Line: The housing recovery is underway.

Is that what this is? In March 2006 the number was 6.9 million units versus 4.62 million now. That is a recovery?

And let me point out that judges have made foreclosures more difficult as the FHA has made it easier for deadbeats to borrow again. As morganovich points out, FHA loans were 38% of all 2010 mortgages. The rates are extremely low and require down-payments of 5% or less. The track record is terrible because default rates for FHA mortgages in 2009 were nearly a third. Now that the FHA is insolvent it will need a huge bailout from congress or we will see huge headwinds for the borrowers looking to jump on the next false trend.

 

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