This Cycle Is NOT Meant To Be Ridden!
Floyd Norris from the New York Times reports that the number of house sales has stabilized below the boom years of 2005-2006. The issue is that the majority of these sales are of distressed property. People can buy gently used distressed property for significantly less than what it takes to build a comparable home. With the geniuses that are running the banks with holding inventory from the market (aka the shadow inventory) prices are continuing to drop.
Key excerpts from the article are, “But there are a large number of used homes available. The National Association of Realtors estimates that almost two of every five used homes sold in February were on the market because the previous owner was in trouble. It says 26 percent of sales were from foreclosures, and an additional 13 percent were “short sales,” in which the lender agrees to allow the homeowner to sell the home for less than the outstanding balance of the loan. Sellers often have little say in the timing of such sales, and are in a poor bargaining position.
The percentage of forced sales rose to nearly half of all sales in early 2009, at the height of the credit crisis, but fell to around 30 percent as the economy began to improve and banks imposed moratoriums on foreclosures. Now it is on the rise again, producing new pressures on prices and increased competition for home builders still trying to sell homes built in more optimistic times.”
A Housing Markey Cycle Diffrent From Others
By FLOYD NORRIS
TO judge by the overall level of home sales in the United States, the housing market has stabilized at a level well below the peak period of 2005 and 2006 but still higher than the sales rates that characterized prosperous periods in the 1980s and 1990s. Still, few of those sales are of new homes and a rising proportion are forced sales of homes no longer worth the amount that was borrowed.
The sales rate for existing homes — about 4.9 million over the last 12 months — is virtually the same as in mid-1999. Yet sales of newly built single-family homes have plunged to the lowest levels seen since the government began collecting statistics on such sales in 1963. The Census Bureau reported this week that only 17,000 new homes were sold in February, for an annual rate of 250,000 after taking seasonal factors into account. Both of those numbers are the lowest on record.
The February sales pace was undoubtedly depressed by harsh weather in the Northeast, and a rebound in March or April is possible. But the total number of homes sold over the 12-month period — 349,000 — is lower than in any comparable period.
As a result, this cycle has been very different from previous ones. Home sales plunged in the early 1980s, when a combination of severe recession and high interest rates devastated the housing business, and they also suffered in 1990 and 1991, another recessionary period. But in each of those recessions, sales of new and existing homes declined at about the same pace.
It was decreased demand that hurt sales in previous downturns. Now demand is down, in part because some would-be buyers cannot qualify for mortgages that would have been available during the boom. But oversupply is also a major problem now.
Too many houses were built in many areas during the boom, and now housing starts have plunged, as can be seen in the bottom chart. There are fewer newly built homes available, and in some areas, buyers complain that builders have not been willing to cut prices to meet the prices available on used homes in the same area.
But there is a large number of used homes available. The National Association of Realtors estimates that almost two of every five used homes sold in February were on the market because the previous owner was in trouble. It says 26 percent of sales were from foreclosures, and an additional 13 percent were “short sales,” in which the lender agrees to allow the homeowner to sell the home for less than the outstanding balance of the loan. Sellers often have little say in the timing of such sales, and are in a poor bargaining position.
The percentage of forced sales rose to nearly half of all sales in early 2009, at the height of the credit crisis, but fell to around 30 percent as the economy began to improve and banks imposed moratoriums on foreclosures. Now it is on the rise again, producing new pressures on prices and increased competition for home builders still trying to sell homes built in more optimistic times.