New Home Sales, Other Housing Numbers Weak

Recent reports on housing show weakness despite continued rising prices.  New Home sales in March were down 14.5% from February and 13.3% below March 2013.  Sales in the northeast were up while the other three regions were all down.  The number of homes for sale was up 3.2% and the month supply rose to six, boosted by the weak sales figure.  The number of houses for sale has risen slowly over the last year suggesting that inventory may not be an issue.  Housing starts were also lackluster, down 2.4% in March from February but up 11.2% from a year earlier.  Despite the year over year gain, housing starts remain under one million units at annual rates, a pace that is too weak to meet demographic growth.  Existing Home Sales aren’t making up for the new home weakness. Existing home sales were 4.59 million at annual rates in March, down 0.2% from February and down 7.5% from a year earlier.  The weakness was in both single family homes and condos and coops.  Nationally months of supply is 5.2 months, little changed in the last year.

Interest rates and unemployment are often blamed for sluggish housing numbers.  However, mortgage rates haven’t changed much since May last year. The economy and the labor market are improving.  Foreclosures continue to decline as the housing markets continues to recover from the financial crisis of five years ago.  If higher home prices – up 13% in the last 12 months – are the factor slowing home sales, we may see prices level off and turn down in coming months.

Housing Looking for Good Old Days

Rising Home Prices are boosting property taxes while mortgage lenders may be getting more generous.

Bloomberg reports that property tax collections are rising at the fastest pace since the financial crisis with gains spread across the country. Among cities cited as enjoying renewed revenue gains were San Jose CA, Nashville TN, Houston TX and Washington DC.  Rising home prices, as chronicled by the S&P/Case Shiller Home Price Indices are a key factor in the rebound.  With some communities under pressure from lower revenues in recent years, the rebound will be welcome.

A different development in housing finance may remind some people of darker memories however. The Wall Street Journal reported over the weekend that one major bank is offering mortgages with only 5% down payments.  This does not appear to be a return to the sub-prime days of years past and the loans are not being offered to all comers.  It may also reflect the decline since last May in mortgages for refinancing. Since the Fed first hinted about tapering and the end of QE last year, the refi business has dropped from 75% of all mortgages to roughly half.  Nevertheless, some may wonder if the generosity will turn out badly for the lender.

Properties Under Water at Lowest Level in Two Years

RealtyTrac® released its U.S. Home Equity & Underwater Report on April 17th. For the first quarter of 2014, the report shows that 9.1 million U.S. residential properties were seriously underwater — where the combined loan amount secured by the property is at least 25 percent higher than the property’s estimated market value — representing 17 percent of all properties with a mortgage in the first quarter.

The first quarter negative equity numbers were down to the lowest level since RealtyTrac began reporting negative equity in the first quarter of 2012. In the fourth quarter of 2013, 9.3 million residential properties representing 19 percent of all properties with a mortgage were seriously underwater, and in the first quarter of 2013 10.9 million residential properties representing 26 percent of all properties with a mortgage were seriously underwater. The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.

The universe of equity-rich properties — those with at least 50 percent equity — grew to 9.9 million representing 19 percent of all properties with a mortgage in the first quarter, up from 9.1 million representing 18 percent of all properties with a mortgage in the fourth quarter of 2013.

Another 8.5 million properties were on the verge of resurfacing in the first quarter, with between 10 percent negative equity and 10 percent positive equity. This segment represented 16 percent of all properties with a mortgage in the first quarter. That was compared to 8.3 million properties representing 17 percent of all properties with a mortgage in the fourth quarter of 2013.

Fewer distressed properties had negative equity in the first quarter, with 45 percent of all properties in the foreclosure process seriously underwater — down from 48 percent in the fourth quarter of 2013 and down from 58 percent in the first quarter of 2013. Conversely, the share of foreclosures with positive equity increased to 35 percent in the first quarter, up from 31 percent in the fourth quarter and up from 24 percent in the third quarter of 2013.

Markets with most negative equity States with the highest percentage of residential properties seriously underwater in the first quarter were Nevada (34 percent), Florida (31 percent), Illinois (30 percent), Michigan (29 percent), and Ohio (27 percent).  Major metropolitan statistical areas (population 500,000 or more) with the highest percentage of residential properties seriously underwater were Las Vegas (37 percent), Lakeland, Fla., (36 percent), Palm Bay-Melbourne-Titusville, Fla., (35 percent), Cleveland (35 percent), Akron, Ohio (34 percent), and Detroit (33 percent).

Markets with most resurfacing equity Major metro areas with the highest percentage of resurfacing equity — between negative 10 percent and positive 10 percent — were Louisville, Ky., (37 percent), Columbia, S.C. (28 percent), Colorado Springs, Colo., (28 percent), Little Rock, Ark., (28 percent), and Tulsa, Okla., (27 percent).

Markets with most equity-rich properties Major metro areas with the highest percentage of equity rich properties — those with at least 50 percent equity — were San Jose, Calif., (39 percent), Honolulu (35 percent), San Francisco (35 percent), Poughkeepsie, N.Y., (34 percent), and Los Angeles (32 percent).

Markets with most positive-equity foreclosures Major metro areas with more than 50 percent of properties in foreclosure with equity included Denver (64 percent), Boston (58 percent), Minneapolis (58 percent), Houston (54 percent), and Washington, D.C. (52 percent).

Lackluster Housing Numbers

Housing data are disappointing.  Permits for new homes in March were down 2.4% from February with weakness concentrated in apartments and a slight  increase in single family homes. Housing starts were up 2.8% in March from February and single family unit starts were up 6% on the month. However, at 946,000 starts at annual rates, housing construction remains weak.  The NAHB Sentiment index was flat in April at 47.

The best thing one can say about housing is that this late (five years) into an economic expansion, housing should be passing the growth leadership to other parts of the economy.  The difficulty with that bit is that housing still hasn’t seen a real rebound in starts – figures should be comfortably north of one million units at annual rates.  Most likely signs of strength will continue to be limited to existing homes for awhile longer.

National Credit Default Rates Decreased in March 2014 According to the S&P/Experian Consumer Credit Default Indices

S&P Dow Jones Indices released the latest results for the S&P/Experian Consumer Credit Default Indices. Data is through March 2014.

S&P/Experian Consumer Credit Default Indices Press Release – March 2014 

After Several Years Of Steady Decline, U.S. Household Leverage Is Showing Signs Of Increasing Again

The great leveraging of America began in the mid-1980s with the wider use of credit cards and the introduction of home equity lines of credit. By 2000, household debt had grown to more than 90% of disposable personal income, and by the end of 2007, it had peaked at 135%. During the financial crisis and the resulting recession, however, the trend toward increased household leverage reversed itself. The recession altered households’ behavior as they borrowed less and paid down their debt, which changed their net borrower status (the difference between borrowing and saving during a period) to net lender.

Household deleveraging is one of the chief reasons that the recent economic recovery has been so anemic, with the average annualized quarterly real GDP growth since the recession ended at just 2.3%, much less than the historical average of 3.2% during the post-war period. Until recently, it continued to dampen consumer spending. That said, there are now signs that the drawn out deleveraging by households might be coming to an end. Recent indicators from the Federal Reserve’s Financial Accounts of U.S. (previously known as the Flow of Funds Account) suggest that household balance sheets are improving, and there are early signs of willingness to take on new debt.


The U.S. Financial Accounts document that 2013 ended with households and nonprofit organizations (collectively referred to as households in this article) increasing their debt for a third consecutive quarter. This is the first time that has happened since the Great Recession ended. By the end of fourth-quarter 2013, households had accumulated $13.8 trillion in debt, which is about 2% above the trough of the most recent debt cycle (third-quarter 2012). This is still 5.7% below the historical peak of $14.6 trillion in the third quarter of 2008, which was the culmination of the skyrocketing household debt that began in 2000. Much of the growth in household debt came from increases in mortgage liability. Rising house prices and attractive mortgage financing encouraged more people to buy homes. Credit innovations and expansions also enabled formally non-qualifying households to obtain mortgages. All of these factors contributed to an increase in mortgage liability in the household sector of about 91% in real terms from 2000 to 2007. For all of 2013, household debt climbed 1.2%–the largest annual gain since 2007.

Debt in the U.S. household sector–even after scaling by disposable income to account for the population increase, price changes, and the substantial increase in the volume of economic activity over the period–had been rising since the post-war period (see Chart 1). In the fourth quarter of 2001, the total indebtedness ratio crossed the 100% mark. (An indebtedness ratio above 100% indicates that the household debt outstanding is larger than the annual flow of disposable personal income; a ratio of less than 100% means the opposite). This ratio continued to increase until fourth-quarter 2007, when it began to fall as the impact of the financial crisis and recession hit households. At the height of indebtedness, households owed $1.35 for each $1.00 of disposable income.

To make matters worse, the combination of the large amount of debt stemming from the home-buying spree and the fall in home prices from 2006 to 2009 led to an overhang in household debt that has–until just recently–been a terrible drag to U.S. consumption levels. Because consumption accounts for two-thirds of U.S. GDP, the decreased consumption has held back GDP growth. The ratio of households’ aggregate mortgage debt to the aggregate real estate asset values jumped during the housing bust (see Chart 2), leaving a deep scar on many households’ balance sheets. Six years later, home prices have rebounded back to more or less to their pre-crisis levels, and people with foreclosed homes no longer have mortgages on their balance sheets, all of which–together with households’ drawn out deleveraging–has helped bring down the ratio substantially.

To read the full report, click here.

Sales Volume Slips in February, Institutional Buyers Pull Back, Distressed Sales Fall

RealtyTrac® , released its February 2014 Residential & Foreclosure Sales Report on March 27th, showing that U.S. residential properties, including single family homes, condominiums and town homes, sold at an estimated annual pace of 5,083,241 in February, a 0.2 percent decrease from the previous month but still up 7 percent from a year ago  February marked the fourth consecutive month where sales activity has decreased on a monthly basis. The decrease in sales volume nationwide was driven by monthly decreases in 31 states. Meanwhile sales volume decreased on a year-over-year basis in six states, including Massachusetts, California, Arizona and Nevada, and 21 of the nation’s 50 largest metro areas, including seven California markets along with Phoenix, Orlando, Las Vegas and Detroit, among others.

“Supply and demand have reached a bit of a standoff in this uneven real estate recovery,” said Daren Blomquist, vice president at RealtyTrac. “The supply of distressed properties — which buyers and investors have come to rely on over the past few years — is evaporating quickly in most markets, but that dwindling supply is not being adequately replenished by non-distressed homeowners listing their homes or by new homes being built. Meanwhile, a key source of demand over the past two years — institutional investors purchasing single family homes as rentals — is starting to decline, and it’s not yet clear if that diminishing demand will be filled by first-time home buyers and move-up buyers.”

Distressed sales and short sales account for 17 percent of all sales in February Short sales and distressed sales — in foreclosure or bank-owned — accounted for 16.9 percent of all U.S. sales in February, up from 16.1 percent of sales in January but down from 19.1 percent of sales in February 2013. The median price of distressed properties — in foreclosure or bank-owned — was $96,606 in February, 44 percent below the median price of non-distressed properties: $172,339. Short sales nationwide accounted for 5.7 percent of all sales, up from 5.5 percent in January but down from 6.9 percent a year ago. Metro areas with the highest percentage of short sales included Las Vegas (17.0 percent), Orlando (16.8 percent), Tampa (14.9 percent), Memphis (14.5 percent), and Miami (12.3 percent). The percentage of short sales decreased from a year ago in all of these metros.

Institutional investor share down nationwide, up mostly in South, Midwest Institutional investors — entities that have purchased at least 10 properties in a calendar year — accounted for 5.9 percent of all U.S. residential property sales in February, up from a revised 5.0 percent of sales in January but down from 7.2 percent of sales in February 2013. February was the third consecutive month where the institutional investor share of sales declined on a year-over-year basis after 19 consecutive months of year-over-year increases.

  • 91 percent of all institutional investor purchases in February were all-cash
  • 17 percent of all institutional investor purchases were properties in foreclosure or bank-owned
  • 81 percent of all institutional investor purchases were properties priced $200,000 or lower
  • 63 percent of all institutional investor purchases were properties with between 1,000 and 2,000 square feet
  • 55 percent of all institutional investor purchases were properties built in 1990 or later

Among metropolitan statistical areas with a population of 500,000 or more, cities with the highest share of institutional investor purchases in February were Atlanta (25.2 percent), Columbus, Ohio, (21.4 percent), Knoxville, Tenn., (18.2 percent), Phoenix (15.2 percent), and Cape Coral-Fort Myers, Fla. (14.8 percent).


Employment and Housing Boost Prospects For U.S. Mortgage Insurers

FOX BUSINESS Interview with David Blitzer on U.S. Home Prices

David Blitzer, Managing Director and Chairman of the Index Committee, discusses the latest January 2014 results for the S&P/Case-Shiller Home Price Indices on ‘Opening Bell’ with Maria Bartiromo.

Pace of Home Price Gains Slow According to the S&P/Case-Shiller Home Price Indices

Data through January 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that the 10-City and 20-City Composites rose 13.5% and 13.2% year-over-year. S&P/Case-Shiller Home Price Indices ─ January 2014


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