Home Builders’ Sentiment Index Up, Again

The National Association of Home Builders confidence index rose to 40 from 38 reaching its highest level since mid-2006 before the housing bust.  This topped most analysts’ forecasts as housing outpaces expectations.  Builders’ expectations for the future also climbed in the latest report.  The news comes amidst further reports of shrinking inventories of available houses and recent increases in home prices.  With recent gains in home prices, some analysts are beginning to look to rising housing wealth — peoples’ wealth in their homes — to contribute to consumer confidence and spending. (see recent story in San Francisco Chronicle)

Consumer Credit Default Rates Remain Near Recent Lows in August 2012 According to the S&P/Experian Consumer Credit Default Indices

S&P Dow Jones Indices released today the latest results for the S&P/Experian Consumer Credit Default Indices.  Data is through August 2012.  To access click:  S&P/Experian Consumer Credit Default Indices – September 2012

Economic Research: Spain’s Housing Market May Need Four More Years To Rebalance

House prices in Spain are a key variable in the performance of the country’s economy. The housing boom built up unsustainable imbalances, such as an oversupply of dwellings, which will need to fully correct before a sustainable recovery takes place.

The unwinding has begun: House prices have dropped 22% in nominal terms between first-quarter 2008 and first-quarter 2012, according to the Organization for Economic Cooperation and Development. That’s more than in any other eurozone country except for Ireland. However, the magnitude of the decline has to be juxtaposed against the 150% rise in prices in Spain between 2000 and the peak in 2008. We note that prices climbed 116% in Ireland and 60% in the eurozone on average over the same period.

A look at each of the major trends affecting Spain’s residential real estate market–the housing overhang, household debt, housing price ratios, and unemployment–indicate that the correction is likely to take up to four more years. In addition, price fundamentals show that a further 25% drop in housing prices could be in order.
  • For Spain’s housing market to recover, household debt, which is still high, needs to come down further, implying years of weak credit demand.
  • Because of the heavy weight of unsold housing stock, we believe that the correction in housing prices is likely to be deeper and more prolonged than in the previous cycle, taking up to four more years for the market to absorb the glut.
  • A look at fundamentals–price to income and price to rent ratios–leads us to expect a further 25% drop in housing prices.
  • Investment and employment in the construction sector is now down to 12.7% and 6.8% of GDP, close to half of 2006 and 2007 levels, respectively.
  • The bursting of the real estate bubble is visible in Spain’s dire economic prospects: Standard & Poor’s expects GDP to contract in real terms by 1.5% this year and by 0.5% in 2013.

Click here to read the full report.


PODCAST: What’s Happening In Australia’s Housing And RMBS Markets

Investors in Australian RMBS continue to benefit from the strong credit performance of the underlying residential mortgage portfolios. Tune in as Melbourne-based analyst Erin Kitson provides an update on the Australian residential housing market and RMBS issuance activity.
Click here to listen or download.

Foreclosures Down 15% from Year Earlier

RealtyTrac® (www.realtytrac.com) released its U.S. Foreclosure Market Report™ for August 2012 on September 13th, showing foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 193,508 U.S. properties in August, an increase of 1 percent from July but down 15 percent from August 2011. The report also shows one in every 681 U.S. housing units with a foreclosure filing during the month.

  • Illinois posted the nation’s highest foreclosure rate, one in every 298 housing units with a foreclosure filing. August was the first month that Illinois has ranked No. 1 since RealtyTrac began issuing its report in January 2005.
  •  Twenty states registered year-over-year increases in foreclosure activity, led by judicial foreclosure states such as New Jersey, New York, Maryland, Illinois and Pennsylvania.
  •  Foreclosure activity in the 24 non-judicial states and District of Columbia combined decreased 31 percent annually, although 15 non-judicial states and DC posted monthly increases in foreclosure activity, including Arkansas (61 percent), Utah (41 percent), Colorado (25 percent) and Washington (23 percent).
  •  Following three straight months of year-over-year increases, U.S. foreclosure starts in August decreased 13 percent from a 17-month high in August 2011.
  •  U.S. bank repossessions (REO) in August decreased 2 percent from the previous month and were down 19 percent annually — the 22nd consecutive month with a year-over-year decline in REOs.

“Bucking the national trend, deferred foreclosure activity boiled over in several states in August,” said Daren Blomquist, vice president of RealtyTrac. “In judicial states such as Florida, Illinois, New Jersey and New York, this was a continuation of a trend we’ve been seeing for several months now. The increases in Florida and Illinois pushed foreclosure rates in those states to the two highest in the country — supplanting the non-judicial states of Arizona, California, Georgia and Nevada. Previous to August, the nation’s top two state foreclosure rates have been from those four non-judicial states every month since December 2010.

 “Meanwhile foreclosure activity in most non-judicial states stayed on a downward trajectory in August, with a few exceptions,” Blomquist continued. “Most notably, Washington state documented a 38 percent annual increase in foreclosure activity in August after 16 straight months of year-over-year declines. The rebounding activity in Washington state is likely the result of lenders catching up with foreclosures delayed by a state law that took effect in July 2011 and allowed homeowners facing foreclosure to request mediation. This rebounding pattern will likely be repeated in the coming months in other states that have passed legislation delaying the foreclosure process.”

Home prices are up versus a year ago in 13 major cities

June’s data for the S&P/Case-Shiller Home Price Indices were positive for the housing market. The 10-City Composite was up 2.2% and 20-City Composites was up 2.3% in June over May, mimicking the returns they each posted in May over April.

Only two cities – Charlotte and Dallas – saw annual rates of change worsen in June. The other 18 cities and both composites saw an improvement in this statistic. There are now 13 cities where the annual rates of change are positive – Charlotte, Cleveland, Dallas, Denver, Detroit, Miami, Minneapolis, Portland, Phoenix, San Francisco, Seattle, Tampa and Washington DC – improving over last month’s report of 12 such cities. In Boston, home prices remained unchanged versus June 2011. The six remaining cities – Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego – still show average home prices below their year-ago levels.

S&P/Case-Shiller Home Price Indices

On a monthly basis, all 20 cities and both Composites rose in June over May. We have now observed three consecutive months of increasing home prices at a national level, and improvements in monthly and annual returns across many markets. These are signs of some stability in the housing market, but not yet an indication of a sustained recovery. Stay tuned….

Sales volume still low

Housing statistics for June and July 2012 were largely positive, but we still have not seen a real pickup in sales volume for more than five years. The S&P/Case-Shiller sales pair counts, NAR’s existing home sales and the US Census housing starts remain low compared to their pre-recession levels. S&P/Case-Shiller sales pairs are updated the last Tuesday of each month. The latest data in the chart below are for June 2012, released with the S&P/Case-Shiller Home Price Indices on Auguts 28th.

S&P/Case-Shiller Home Price Sales Pairs. Sources: S&P Dow Jones Indices and Fiserv.

For both the 10- and 20-City Composites, sales volume peak around August of each year (the high points of each line, each year) and are at their lowest around February (the low points).

From 2000 until the 2006 market peak, the 10-City Composite April sales pairs ranged from about 65,000 to 100,000 and the 20-City Composite from about 100,000 to 170,000. Once the market collapsed we saw the 2008-2012 April transaction volumes fall to about 45,000-50,000 for the 10-City Composite and 85,000-95,000 for the 20-City Composite. June 2012 reported 45,877 sales pairs for the 10-City Composite and 86.334 for the 20-City Composite, about half the pace witnessed between 2004 and 2006.

As seen by the graph below, existing home sales reported by the National Association of Realtors show the same pattern.

U.S. Existing Home Sales. Source: National Association of Realtors

In early 2000, the pace of existing home sales was about 4.5 million per year. From there they rose to their late-2005 peak of 6.34 million. Once the housing crisis began sales volume fell to a level of about 3.4 million in late 2008. From there sales rose through 2009, largely due to the homebuyers’ tax credit, but reversed course again once this benefits ran out in 2010.

As of July 2012, existing home sales are still below 4.0 million, and only slightly more than their average of the prior two years. This is about the same rate seen in 1997, and far below what the housing market experienced during its 2000-2006 run-up. Since 1984, however, average existing home sales are only about 4.0 million, about the current pace.

Housing starts reported by the US Census bureau also have not moved much beyond recent lows.

U.S. Housing Starts. Source: U.S. Census Bureau.

The red line in the graph above is housing starts for single family homes. As of July 2012, they are at a pace of about 500,000 per year. The 30-year low for this statistic was 353,000 in March 2009, but as you can see in the graph above, starts have really not moved much in the past three years. July’s pace is still below the lows reached in the early 80-s and 90’s recessions.

Buy vs. Rent and Home Prices vs. Income Favor Buyers

Comparisons of the costs of buying a home to renting a home favor buying, though not by a huge margin currently.  The first chart shows the ratio of the S&P/Case-Shiller 10-City Home Price Index to the Consumer Price Index for Renting a primary residence.  The ratio is scaled so that the average value over the 1987-2012 period is 100.  When the ratio is above 100, home prices compared to rents are higher than average and renting is preferable; when the ratio is under 100, buy is favored.  The boom and bust from about 2003 to 2009 stands out on the chart.  Even with the sharp drop in prices, buying is less favored over renting today than in the mid-late 1990s.   Recently there have been several news reports of rising rents, suggesting that even if home prices continue their recovery, buying could still be favored over renting.


 One measure of how much home prices have moved is to compare them to disposable personal income per capita. “Disposable” means after taxes and “per capita” means that the aggregate personal income in the economy is divided by population so that income is seen to rise merely because the population rises.  There is no right number for this ratio but it can be compared to its average over several years to see if it is high or low currently.  The chart shows this ratio — S&P/Case-Shiller 10-city Home Price Index divided by Disposable Personal Income per capita. The scale is calculated so that the average of the 1987-2012 period is 100. As shown there, home prices are currently low compared to incomes, suggesting that the current market favors buyers over sellers.

Source: S&P Dow Jones Incies and US Bureau of Economic Analysis

Economic Update: The Housing Recovery is Finally Gaining Steam

RealtyTrac Second Quarter Foreclosure Report

RealtyTrac®  released its Q2 2012 U.S. Foreclosure Sales Report™ today, which shows that sales of homes that were in some stage of foreclosure or bank-owned (REO) accounted for 23 percent of all U.S. residential sales during the second quarter — up from 22 percent of all sales in the first quarter and up from 19 percent of all sales in the second quarter of 2011.

High-level findings from the report:

  • Although foreclosure-related sales as a percentage of total sales increased, the raw number of foreclosure-related sales in the second quarter (224,429) decreased 12 percent from the previous quarter and was down 22 percent from the second quarter of 2011 — the first annual decrease in foreclosure-related sales after five quarters of increases.
  •  The average foreclosure-related sales price in the second quarter ($170,040) increased 6 percent from the previous quarter and was up 7 percent from the second quarter of 2011 — the first annual increase in average price since Q2 2010 and the biggest annual increase since Q4 2006.
  • Homes in foreclosure or bank-owned sold at an average price that was 32 percent lower than the average price of a non-foreclosure home, up from a 30 percent discount in the first quarter and also a 30 percent discount in the second quarter of 2011.
  • The gap between bank-owned (REO) sales and pre-foreclosure (short) sales continued to shrink in the second quarter, with bank-owned sales outnumbering pre-foreclosure sales by 9,833, the smallest difference since the third quarter of 2007. Pre-foreclosure sales outnumbered bank-owned sales in 13 states and the District of Columbia.
  • As a supplement to the report, RealtyTrac analyzed nationwide short sale transactions occurring on properties not yet in the foreclosure process and found that those increased 18 percent on a year-over-year basis for the period of January through May. These non-foreclosure short sales accounted for 14 percent of all sales during this time period, a bigger percentage than either pre-foreclosure sales or bank-owned sales.

“The second quarter sales numbers provide solid statistical evidence of what we’ve been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets,” said Daren Blomquist, RealtyTrac Vice President. “Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it’s no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis.

“Three straight months of increasing foreclosure starts through July may ease the inventory shortage somewhat in the coming months when many of these foreclosure starts translate into listed short sales or bank-owned homes,” Blomquist added. “The increase in short sales of properties that have not even started the foreclosure process indicates that lenders are moving further upstream to deal with their distressed inventory, thereby avoiding the increasingly complex and lengthy foreclosure process altogether.”

Pre-foreclosure sales down from three-year high in first quarter

Third parties purchased a total of 107,298 pre-foreclosure homes — in default or scheduled for auction — during the second quarter, a decrease of 10 percent from the previous quarter and a decrease of 9 percent from the second quarter of 2011. Pre-foreclosure sales accounted for 11 percent of all sales during the second quarter, up from 10 percent of all sales in the previous quarter and 8 percent of all sales in the second quarter of 2011.

Despite the national decrease, pre-foreclosure sales increased on a year-over-year basis in 16 states, including Michigan (42 percent increase), Illinois (35 percent increase), Connecticut (27 percent increase) and Massachusetts (27 percent increase).

Pre-foreclosure homes, which are often sold via short sale, sold for an average price of $185,062 in the second quarter, up 5 percent from a record low for the RealtyTrac report in the previous quarter but still down 1 percent from the second quarter of 2011.

The average sales price of a pre-foreclosure home in the second quarter was 26 percent below the average price of a non-foreclosure home, up from a 24 percent discount in the first quarter and a 18 percent discount in the second quarter of 2011.

Pre-foreclosure homes that sold in the second quarter took an average of 319 days to sell after starting the foreclosure process, up from from an average of 306 days in the previous quarter and up from an average of 245 days in the second quarter of 2011.

REO sales decrease 31 percent from year ago, average prices rise 10 percent

Third parties purchased a total of 117,131 bank-owned (REO) homes in the second quarter, down 13 percent from the previous quarter and down 31 percent from the second quarter of 2011. REO sales accounted for 12 percent of all sales in the second quarter, the same percentage as in the first quarter but up from 11 percent of all sales in the second quarter of 2011.

REOs sold for an average price of $155,892 in the second quarter, up 6 percent from the first quarter and up 10 percent from the second quarter of 2011. The average sales price of a bank-owned home in the second quarter was 37 percent below the average sales price of a non-foreclosure home, the same percentage discount as in the first quarter but down slightly from a 38 percent discount in the second quarter of 2011.

REOs that sold in the second quarter took an average of 195 days to sell after completing the foreclosure process, up from 178 days in the first quarter and also 178 days in the second quarter of 2011.

Georgia, Nevada, California post highest percentage of foreclosure sales

Foreclosure sales accounted for 43 percent of all residential sales in both Georgia and Nevada in the second quarter, the two highest percentages among the states despite decreasing foreclosure-related sales activity in both states.

California foreclosure-related sales in the second quarter decreased 10 percent from a year ago, but still accounted for 40 percent of all residential sales in the state — the third highest percentage of any state. The average price of a foreclosure-related sale in California during the second quarter was $248,676, an increase of 4 percent from the previous quarter and also an increase of 4 percent from the second quarter of 2011.

Other states where foreclosure-related sales accounted for at least one in five sales in the second quarter were Michigan (35 percent), Arizona (33 percent), Illinois (27 percent), New Hampshire (24 percent), Colorado (22 percent), Wisconsin (22 percent), Minnesota (22 percent), Oregon (21 percent), and Florida (21 percent).



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