Tuesday, May 15, 2012

April Real Estate Blowout: Recovery Is Underway

Houston is now the 31st metro or state real estate market reporting double-digit sales gains in April (see full list here):

"April marked the eleventh straight month of growth in Houston home sales. Total sales and sales of single-family units registered increases of nearly 10% each over April of 2011. The average price of a single-family home rose by 11% year-over-year to $223,000. Rising demand pushed down the inventory of single-family homes by 27% compared to a year earlier. The Houston Association of Realtors expects tighter inventory will continue to push prices upward and spur new home construction in the coming months."

And add Tuscaloosa as No. 32:

"April home sales in Tuscaloosa experienced a 25.2% increase when compared to April 2011. The last time Tuscaloosa's real estate market experienced positive sales growth in April when compared to the previous year was in 2010 and that was primarily due the home buying tax credit. April marks represents the eleventh consecutive month that Tuscaloosa home sales have improved when compared to the same month from the prior year."

And add Orange County as No. 33:

"Orange County had the fastest April home-selling pace since 2006. Overall, house shoppers bought 2,920 residences last month, up 17.5% in a year."

28 Comments:

At 5/15/2012 10:21 PM, Blogger Bill said...

Excellent news!

 
At 5/15/2012 10:48 PM, Blogger VangelV said...

Let us look at some of the facts please.

First, total inventory numbers, if we include foreclosures, 90 day delinquent, and bank owned but not on market houses, stands near 7 million units. That is a huge number.

Second, the robosigning deal has allowed banks to start selling homes that are behind. The banks now own around 900,000 housing properties.

Third, 10% of American houses are VACANT.

Forth, only around 250,000 out of 1.2 million units in some stage of foreclosure have hit the market.

Fifth, 4 million units are delinquent but not necessarily in foreclosure.

Sixth, close to 10 million more homes are at risk of default.

Seventh, average foreclosure now takes nearly two years. That ensures a steady supply of housing that will dampen price increases and sentiment.

Now none of this means that you can't have the appearance of a recovery, particularly in areas that are attracting a lot of new investment and economic activity. But the numbers do not lie and do not paint a good picture nationally. The only way to have a sustained boom is to have the Fed ease again but that will not be good for the USD and inflation in the long term.

 
At 5/15/2012 11:13 PM, Blogger Nick said...

lol drudge siren

 
At 5/16/2012 2:45 AM, Blogger PeakTrader said...

States Hardest Hit by Housing Collapse Lead U.S. Jobs Recovery
March 10, 2012

"Arizona, California, Florida and Nevada -- the states that were most hurt in the real estate collapse over the past five years -- are now leading the U.S. labor market expansion.

The four states added 222,100 jobs from August through December, accounting for 28 percent of the increase in U.S. employment in that period, according to Labor Department figures.

Households in the “sand states,” whose homes have lost on average half of their value since the 2006 peak in the housing bubble, are healing after cutting debt and bolstering their net worth, said Jan Hatzius, chief economist at Goldman Sachs Group Inc..

“There has been a whole lot of balance sheet improvement,” said James Paulsen, who helps oversee more than $330 billion as chief investment strategist in Minneapolis for Wells Capital Management.

Price declines have reduced net worth of homeowners in states where housing boomed from 2002 to 2006. The states with the largest average home price declines from their peaks to January 2012 have been Nevada, 60 percent; Arizona, 51 percent; Florida, 49 percent; and California, 44 percent, according to CoreLogic, a provider of real estate information.

While home prices have continued to fall, residential investment, including homebuilding as well as renovations, contributed to U.S. economic growth in the fourth quarter, government figures show. It subtracted from growth from 2006 to 2011.

“Housing is no longer a drag on the economy and is turning into a slight positive,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. California is gaining from “the social networking boom and growth in smart-phones and tablet PCs,” while in Florida, “tourism has been exceptionally strong.”

Household wealth in the U.S. climbed from October through December for the first time in three quarters, the Federal Reserve said...Consumers’ ratio of debt payments to disposable income in the third quarter was the lowest since 1994, a separate Fed report found."

 
At 5/16/2012 2:55 AM, Blogger Henry H said...

In Houston, the inner loop properties are doing especially well. I have a few friends that live west of downtown. Their properties have appreciated in the last few years.

 
At 5/16/2012 3:20 AM, Blogger kmg said...

A lot of this is due to Operation Twist (resulting in record-low mortgage rates).

If the Fed is smart, they will keep Twist going.

 
At 5/16/2012 4:54 AM, Blogger Larry G said...

I'll ask the same question asked before....

Assuming the sub-prime folks are not the surge of new buyers.. WHO are they?

Question: what percent of the current sales are "short" sales verses existing or new homes?

For several years now, in some places, people could not sell their homes, even to take another job....and move...because their houses were underwater and there were few if any buyers anyhow.

Are the houses that selling now the ones that have been underwater or have a substantial number of previously underwater houses regained full value?

this is much we do not know here...that overall numbers do not show.

 
At 5/16/2012 6:41 AM, Blogger VangelV said...

"Arizona, California, Florida and Nevada -- the states that were most hurt in the real estate collapse over the past five years -- are now leading the U.S. labor market expansion.....

Does the fact that CA is being used as an argument for a recovery not bother anyone? After all, the state just announced that its deficit will be double what was expected and that it is losing revenue as high earners who are tired of being raped go to low tax jurisdictions?

And when we have shadow inventory at such huge levels but is not hitting the market the realization that improvements will lead to more supply has to be a negative.

Housing WILL improve. But before it does the market has to be allowed to clear. If it isn't we will get another Japan replay until the money printing and borrowing lead to an impasse and the entire economy crashes again.

 
At 5/16/2012 6:43 AM, Blogger VangelV said...


In Houston, the inner loop properties are doing especially well. I have a few friends that live west of downtown. Their properties have appreciated in the last few years.


Low taxes, low interest rates, and capital accumulation are helping the Houston market. Most cities do not have the same support system and cannot benefit in the same way. Companies and high earners are leaving California. California taxes are high. This means that the low interest rates will only help so much before the huge inventory overhang does its expected job.

 
At 5/16/2012 6:50 AM, Blogger VangelV said...

A lot of this is due to Operation Twist (resulting in record-low mortgage rates).

If the Fed is smart, they will keep Twist going.


That is the expectation in an election year. But that is a recipe for disaster because it will not allow the markets to clear and establish a basis for a sustainable recovery.

 
At 5/16/2012 8:00 AM, Blogger geoih said...

Sometimes this cheerleading for the "recovery" gets a little tedious. Here are some countering facts:

http://www.zerohedge.com/news/housing-starts-beat-permits-miss-both-crawl-along-record-bottom

http://www.zerohedge.com/news/will-america-ever-recover-housing-crisis-real-estate-infographic

 
At 5/16/2012 8:19 AM, Blogger Larry G said...

that's an interesting sets of graphics, thx.

As much as I'd like to believe that a recovery is underway.. there still seem to be a crap-load of unanswered questions.

WHO is buying?

What is happening to underwater mortgages?

If you owe (for example) 50K more than your house is worth - selling it is going to be damaging to someone's finances it would seem.

If it damages the mortgage holder, it does not sound like they're going to qualify for another mortgage anytime soon... so they're not "buyers".

the sub-prime folks are not buying...

so who is?

 
At 5/16/2012 8:52 AM, Blogger Jon Murphy said...

WHO is buying?

Many of what is being bought are multi-family (apartment) homes and single family homes that will be rented out. So, investors are leading the recovery (which, historically, they do).

If you look at the housing starts info, you see the same stuff (multi-unit homes are up at leave 40% over the past year; single family homes are pretty flat).

Many who once owned homes but have since shed their mortgages are now renting (you can see rental vacancy rates have tumbled). Whether this is good or bad, I'll leave that for you to decide. I am of the mindset that it is good.

Likely, most of this recovery over the next year-to-year-and-a-half will probably be investors buying up cheap properties and turning them into rental units. This will help us get through this backlog of foreclosures we have and help get single family homes back in business sooner.

 
At 5/16/2012 9:05 AM, Blogger Jon Murphy said...

Some better news overall in the US Housing Market:

The NAHB Housing Market Index averaged 19.7 over the past 12 months. This is the highest annual average since June 2008. While this is still pretty bad by historical standards (anything below 50 is considered bad), it is supporting the outlook of a slow but steady recovery in housing.

 
At 5/16/2012 9:39 AM, Blogger VangelV said...

The 10% of homes that are sitting empty is a big problem. The longer they sit the more they deteriorate and the less they are worth. The loss of capital is a heavy blow to the general economy.

Likely, most of this recovery over the next year-to-year-and-a-half will probably be investors buying up cheap properties and turning them into rental units. This will help us get through this backlog of foreclosures we have and help get single family homes back in business sooner.

Perhaps. But investment is only made possible by money printing operations that are creating huge dislocations in the economy and will cause the capital markets to freeze up when rates are forced higher or the money printing becomes ineffective.

 
At 5/16/2012 9:41 AM, Blogger VangelV said...

The NAHB Housing Market Index averaged 19.7 over the past 12 months. This is the highest annual average since June 2008. While this is still pretty bad by historical standards (anything below 50 is considered bad), it is supporting the outlook of a slow but steady recovery in housing.


Is it, "supporting the outlook of a slow but steady recovery in housing?" Or is it just noise that has gotten a few people who are trying to make a buck or just get their candidate to win the next election excited enough to create another false narrative?

 
At 5/16/2012 9:47 AM, Blogger Jon Murphy said...

A lot of this is due to Operation Twist (resulting in record-low mortgage rates).

I'm not sure how much of an effect the low interest rates are having on the housing market. Mortgage rates have been wicked low for many years now. Why are they just starting to take effect now? No, there is more to the story than just low rates.

The economy is slowly but surely improving: jobs have gained over 1.3 mil this year, production is up across the board, prices remain (largely) subdued, wholesale and retail sales are at record levels, etc etc. People, whether they be individuals or investors, are realizing this recovery is for real and are ready to hop back into real estate (at least, those who can afford it).

Do low interest rates help? Maybe. They help the borrower; hurt the lender.

I'd not be surprised if we see slow growth over the next several years. This is not going to be a gangbuster recovery in housing by any stretch. But it will slowly improve.

 
At 5/16/2012 9:54 AM, Blogger Jon Murphy said...

Is it, "supporting the outlook of a slow but steady recovery in housing?" Or is it just noise

Given all the other good news coming out of housing and construction in general, I don't think it's just noise. If this were just one indicator pointing up, I'd agree. But considering pretty much every construction market (both residential and nonresidential) are rising, as well as rising home prices, falling vacancy rates and rising rents, and the general acceleration of growth in the economy, I'd say this is support for the recovering housing market.

 
At 5/16/2012 10:04 AM, Blogger Paul said...

Phoenix is definitely hopping right now. Last yr, almost 50% of the properties sold were to cash buyers. My real estate friends have told me alot of them are Canadians and other foreigners scooping up deals.

 
At 5/16/2012 10:14 AM, Blogger morganovich said...

"Do low interest rates help? Maybe. They help the borrower; hurt the lender."

of course, the lender in this case is almost entirely the US government. freddy and fannie are 90% of lending.

what i am most curious about in terms of new sales is where the downpayments are coming from. with the average us home having only 7% equity, 20% down means a lot of cash in for most folks.

i have been wondering if this is related to the big reduction in inflows to mutual funds in april. if buyers need to go cash in a big way, a housing recovery could wind up being bad news for equities.

 
At 5/16/2012 10:18 AM, Blogger Jon Murphy said...

what i am most curious about in terms of new sales is where the downpayments are coming from.

I am thinking, Morganovich, that a majority (if not most) of these purchases are investors, where down payments aren't quite as big of an issue.

 
At 5/16/2012 10:51 AM, Blogger Methinks said...

of course, the lender in this case is almost entirely the US government. freddy and fannie are 90% of lending.

In other words, WE are the lenders. Fan and Fred have required massive bailouts yearly. Something that doesn't get as widely reported in the press as a puny hiccup in JPM's hedging portfolio. Where are the protests around the Fan & Fred building and the outrage over the seven figure comps those CEO's are receiving for losing billions every year?

Anyway, the happiness in the RE market doesn't seem to be reflected in the IYR today. It's down.

 
At 5/16/2012 10:57 AM, Blogger Larry G said...

yeah but what this about Fannie/Freddie making a "profit"?

Fannie makes a profit!

 
At 5/16/2012 11:08 AM, Blogger morganovich said...

that "profit" is a bit suspect.

if you drown your bad loans in a deluge of new ones by taking over the whole mortgage market, you can, of course, appear to be making money for a time. the new loans have not had time to go bad.

of course, that "profit" was less than 1% of the GSE bailout which has been nearly $240bn.

the real question is what will happen when rates rise.

issuing 30 year mortages at 3% may look profitable under ZIRP, but what happens when rates rise?

jack up the cost of capital 200bp and freddy and fannie will be a train wreck again and once more, the taxpayer will be holding the bag.

issuing fixed mortgages for 30 years at rates below the typical cost of capital over the last 30 years is a very dangerous idea.

 
At 5/16/2012 11:14 AM, Blogger Methinks said...

This comment has been removed by the author.

 
At 5/16/2012 11:15 AM, Blogger Methinks said...

Larry, was that article your idea of a joke?

Did you read how big those bailouts were?

At least the banks paid back TARP. Fan and Fred are doing the same thing that got them into trouble in the first place and will require even more bailouts in the future (a quarter does not a trend make and we will never see that bailout money again).

Fan and Fred are classic examples of socialized losses and private gains.

 
At 5/16/2012 2:39 PM, Blogger Rick Parker said...

I can't tell you who is buying in your neighborhood but I sure can in mine. As a side note I'm in Fort Myers, FL, epicenter of the real estate crash. My particular neighborhood is semi-rural with a nice mix of home son lots and homes on acreage. 24 months ago there were probably 12 to 15 houses for sale among the 50 houses closest to me.
The only ones left now are in the $300 to $500K range. All the $100 to $200K homes are gone or if still listed have contracts and backups. We're looking for home for some in-laws and have now expanded our search to several miles instead of several blocks. prices are up considerably since last year but still low.

 
At 5/16/2012 8:46 PM, Blogger VangelV said...

The only ones left now are in the $300 to $500K range. All the $100 to $200K homes are gone or if still listed have contracts and backups. We're looking for home for some in-laws and have now expanded our search to several miles instead of several blocks. prices are up considerably since last year but still low.

That is the problem for people who jumped in during the bubble. Many of them saw the value of their homes fall well below their outstanding mortgage amounts. While there are buyers who are willing to sell in areas that did not fall much and buy in Florida as they retire the number of such people is still limited and cannot offset all of the shadow inventory.

We have to keep looking at the data and see what happens, particularly after the election. Because Obama wants to be reelected he has pushed the Fed and Treasury to do all they can to spike the punch bowl and produce a nice party for people hoping for a recovery. How long that will last is anyone's guess. If the script plays out in a similar manner expect a peak within two years and a quick decline afterwards.

 

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