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Some More Housing Charts

On Tuesday, we told the Housing story using mostly words. Today, we'll go with an only-pictures review:

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More Mortgage resets are coming:

Chart via At These Levels

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Median Period (Months) Completion to Sale

Last three charts via Northern Trust
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Funny thing: The charts tell pretty much the same story the words did:  The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.

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Sources:
The Forgotten Resets
At These Levels, Friday, May 11. 2007
http://www.attheselevels.com/archives/678-The-Forgotten-Resets.html

All Indicators Point to Continued Weakness in Market for Existing Homes
Asha Bangalore
Northern Trust, May 25, 2007

April New Home Sales – One-Off Fire Sale!
Asha Bangalore
Northern Trust, May 24, 2007

Q1 Case-Shiller Home Price Index
Asha Bangalore
Northern Trust, May 29, 2007

Thursday, May 31, 2007 | 11:27 AM | Permalink | Comments (61) | TrackBack (5)
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Comments

here's another chart:

http://www.phlx.com/market/advcharts.asp?SYMBOL=HGX

Posted by: doug | May 31, 2007 10:42:15 AM

Just as those have meant nothing to the market, this today also means nothing.

Economy Grows by Just 0.6 Percent in the First Quarter

WASHINGTON (AP) -- The economy nearly stalled in the first quarter with growth slowing to a pace of just 0.6 percent. That was the worst three-month showing in over four years.

pucker up people the lipstick has been applied....

Ciao
MS

Posted by: michael schumacher | May 31, 2007 10:48:05 AM

Latest OFHEO housing price data just came out. Here's my write-up, for what it's worth ...

The Office of Federal Housing Enterprise Oversight, or OFHEO, just released its report (PDF link) on house prices in the first quarter. We've seen outright DECLINES in other price measures -- such as those put out by the Census Bureau (new homes), the National Association of Realtors (existing homes) and S&P/Case-Shiller (existing homes). How did this one differ?

* OFHEO said home prices DID appreciate nationwide in the first quarter. But the 0.45% gain from the fourth quarter was the smallest QOQ gain since Q3 1996 (0.39%) -- and down significantly from the 2.23% rate of appreciation in Q1 2006.

* Measured from a year ago, home prices were reportedly up 4.25%. That's down from a 12.61% gain in Q1 2007. It's also the lowest YOY rate of appreciation since Q3 1997 (4.12%). The chart above shows how the YOY appreciation rate of U.S. homes has changed over time.

* The highest rates of appreciation occurred in Pacific Northwest and Mountain cities, such as Wenatchee, WA (+25.6%), Salt Lake City, UT (+19.12%), and Grand Junction, CO (+16.82%). The cities that performed the worst were spread throughout high-speculation states like California, Nevada, and Florida (Punta Gorda, FL at -4.57%, Sacramento, CA at -4.41%, Modesto, CA at -4.38%, and Reno-Sparks, NV -3.97%, e.g.) A few cities in Michigan, which has been hit hard by job losses related to the auto industry downturn, also made the list.

All told, 237 of 285 cities tracked by OFHEO showed price gains, while 46 had price declines, and two showed no change in prices. A quarter earlier, OFHEO tracked 282 cities. 256 of those showed price gains, while only 25 had price declines, and one showed no change.

My take: The OFHEO numbers confirm what we're seeing in other home price indices. Price appreciation rates are coming down fast, with outright declines showing up in more and more areas. I expect OFHEO's second-quarter figures to look even more subdued, with the first negative quarterly reading since Q4 1994 (which came in at -0.25%).

Two types of housing markets are getting hit the hardest, price-wise:

1) Areas with the most speculation during the boom -- These metropolitan areas are suffering because they have tons of speculators who are trying to unload losing investments. That's sending for-sale inventories through the roof, forcing sellers to cut prices to generate sales. Home price gains in those regions also exceeded income gains by a wide margin. That has left homes largely unaffordable for area residents.

2) Areas with the worst economic fundamentals -- They're experiencing a more "traditional" housing downturn -- one driven by rising unemployment, plant closings, increasing foreclosures, and more. If economic growth remains lackluster, we'll see more metros fall into this category over time.

Posted by: Mike_in_FL | May 31, 2007 10:48:40 AM

would someone mind giving a quick guide on what the different types of ARMs are? for instance why are there more option ARMs upcoming?

Posted by: chaka khan | May 31, 2007 11:38:56 AM

Real estate markets depend on job prospects and new household formation more than any other factors.

Given steady job prospects, find the rate of household formations and you will find the base rate of increased demand for new housing.

If the building of new housing exceeds that rate we will have a cooling off period as the excess supply is absorbed.

That is what has happened. It is not a pricing problem it is an oversupply problem.

I've been investing in RE for fourty years and this is nothing new. What was new was the thinking that anyone could just buy a house and be above water within a few months. That is unreasonable. Real estate transaction costs are so high that it usually takes several years before appreciation can cover the costs and provide a profit to a homeowner.

That said, it is times like these that are the best times to buy real estate. Don't plunge in and buy just anything - but instead of renting if you find the perfect home in the perfect location then BUY IY. You will not be sorry.

Posted by: UncleAnon | May 31, 2007 11:39:21 AM

CK-

Take a stab at that question...

There are more option arms ready to re-set because those were used to get people into houses at the most basic of costs as well as having the "option" to choose a payment. You could pay a neg amortization, straight payment that does'nt get aaplied to principle (unless you specify), or positive amort. (which pays down interest and principle)

The reason so many neg ams were used is that it requires very little upfront and allows the freedon to choose payments. They work great in an environment of full disclosure (for both sides), and a stagnant or in an environmnet of lowering interest rates.

They are very dangerous if the sentiment is for rising rates (my opinion is that they will rise) since the people that are in them tend to be stretched very thin at the point of just making the neg am. payment with a fixed rate. When the rate is adjusted upwards and the person cannot re-fi (fee issues or rising rates)they are stuck with a payment that continues to rise, while the asset they are paying on continues to drop.

It's a recipe for diaster for the people who are in them and are unaware. At some point in the future-real estate will be a great buy but at this point the growing inventory will negate that rise simply based on supply and demand. Unless of course Hank Paulsen says that the bottom is in........so he can be the next person to call a bottom on the housing market for the 9th straight month.

Ciao
MS

Posted by: michael schumacher | May 31, 2007 12:04:43 PM

Times like these are not the best for buying real estate. All the data suggests that house prices will be falling for the next several years. Times like these are when you sit tight and build up your cash pile so that you can buy when the signs of a bottom show up. About 1-1.5 years ago was the time to sell all your investment property, and possibly the house you live in (depending on local market conditions and how much you are willing to pay to avoid renting). If you didn't dump your investment properties last year, be prepared to lose money on them.

This is the biggest overinvestment in housing this country has ever seen. It will not be over this year or next year. Real house prices won't be going up much before this decade ends. Any investment that beats inflation will be a better use of money than buying a house (but watch out for overvalued financial assets and bonds backed by houses). Money market funds and accounts are paying over 5% and are safe and liquid if you want to be ready when the market shows signs of a bottom.

The housing market moves slowly, so it is easier to time. You can be off by almost a year and still get most of the profits.

Posted by: jkw | May 31, 2007 12:08:29 PM

Given the story the charts above tell, it's surprising that the stocks of the homebuilders have barely budged. PE ratios are soaring and book values are dropping, but the market isn't concerned, at least yet.

Here are the prices on 5/30/06 and 5/30/07, with percentage change for the last 52 weeks.

TOL: 28.23 to 29.84, UP 5.7%
MDC: 53.80 to 54.59, UP 1.6%
CTX: 48.57 to 48.66, UP .2%
LEN: 47.82 to 46.15, DOWN 3.5%
KBH: 51.59 to 46.66, DOWN 9.5%
DHI: 26.42 to 23.37, DOWN 11.5%
PHM: 32.66 to 27.43, DOWN 16.0%

and comparted to the lows most of these stocks set last July, many are up significantly. Go figure.

Posted by: DenverKen | May 31, 2007 12:10:41 PM

"That is what has happened. It is not a pricing problem it is an oversupply problem."

No, it is an oversupply problem due to a pricing problem which is due to nationwide speculation.

Posted by: KirkH | May 31, 2007 12:23:18 PM

"It is not a pricing problem it is an oversupply problem."

Eh? An oversupply problem IS a pricing problem. Lower the price enough, and you'll see the households get formed.

Posted by: Estragon | May 31, 2007 12:50:30 PM

Let me explain to those of you who understand real estate from a acedemic perspective instead of from what actually happens.

Firstly, buying real estate is NOT like buying shares of IBM. Each and every house or piece of property is unique and comparable to others like it only in the roughest sense. But this rough comparison is all we have so it is what we go by. That is what makes real estate so interesting. It is an imperfectly priced market with no two items truly substitutable for each other. For example, you can buy a secondary issue of IBM and have exactly the same stock as you would have if you had bought IBM before the secondary issue. Not so with housing. A small shack in a beach city of California cannot be compared for valuation purposes with a huge mansion in a new subdivision of Dallas or a cookie cutter condo in Florida.

The first principle of real estate valuation is location.

And even within locations the valuations swing wildly from one person to the next.

So while those of you who say that now is not the time to buy real estate you are right only if you are in the position of buying the entire real estate market. But it doesn't happen like that.

Every house is unique. Every location is unique.

If you come across the perfect house in the perfect location and you do not buy it that particular chance will most likely be gone forever. I know, cause that has happened to me plenty of times over the last four decades.

I have made some pretty good RE purchases but I have missed far more good buys than I have made. Someone always buys them. If that someone is you then congradulations. But if you let too many get away then I can tell you from experience you will regret it later.

The person who makes the perfect purchase today is taking no chances on the market. He has exactly what he wants and he has the house that will be in greatest demand when others realize their mistake in not jumping in ahead of him to buy it first.

Posted by: UncleAnon | May 31, 2007 12:58:49 PM

To clarify a bit, I am not suggesting that now is the best time to buy the generic idea of a house. Instead, it is a good time to do the hard work and research required to buy that unique house that has all those specific characteristics that are always in demand above other more generic characteristics.

While others are lazily awaiting for others to prop up the market it is the best time to make money by going to work and finding and buying what others will most want when they realize it will be 'safe' to buy something. Then you are the one who plays the waiting game by not selling it to them.

This works all the time.

Posted by: UncleAnon | May 31, 2007 1:15:54 PM

Are you all suggesting there's a problem with real estate? Where have I been? This is great stuff.

Posted by: Mr. Obvious | May 31, 2007 1:20:12 PM

Are people blind? Have they looked around the cities they live in? Has anyone ever seen the amount of building going in there entire lifetime? We doubled the amount of mortgage debt from 2002. Thats right from 7 trillion to 14 trillion. We can thank the reckless balloon head fed for that. Is it going to go from 14 trillion to 28 trillion by 2012. Anyone who doesn't understand that we are powering growth through excessive credit and debt in insane. The unfortunate problem is that interest rates should be much higher, but the genius cb's around the world think that they continue this recycling game forever. Now debt growth slack is being made up by the corporate sector. No one knows when it stops, but it will and it will be thirty years in the making.

Posted by: Shrek | May 31, 2007 1:21:20 PM

1. It is a pricing problem. Current housing prices are artificially inflated, due to the ridiculous amount of credit available in the past few years. Housing should have receeded 2-3 yrs ago, but was propped up by loose credit standards and the availability of 100% no-doc neg am I/O loans to anyone with a heartbeat. Now it is time to pay the piper.

2. It is still too early to buy...no panic yet. Give it 6 months or so. Read some of the credit and RE boards and you'll see why: people who had been qualifying for the abovementioned ridiculous loans are either getting them pulled before closing, or being denied outright now. In essence, the market has had its legs knocked out from under it. Give it awhile to percolate upwards.

3. A picture says a thousand words? These pictures say one word: PAIN

Posted by: LAWMAN | May 31, 2007 1:22:32 PM

"It is an imperfectly priced market with no two items truly substitutable for each other"

And that's why the best home price measures compare the selling price of the same house at different dates. I'm not sure investing without regard to prices is a great idea as long as your subjective take on perfection says "yes". The NASDAQ "felt" like a good deal to a lot of people after losing 20% though it was nowhere near sane valuation.

And Mr. Obvious, it's obvious that Barry isn't arguing for the existence of a housing slump; he's arguing that the extent is more that most are willing to admit. And so far he's been spot on.

Posted by: KirkH | May 31, 2007 1:45:02 PM

Everyday I wake up in the morning and ask myself if I am making a mistake by not consuming well beyond my means because a lot of people are. Is there ever payback time or can debt be taken in ever increasing does forever?

Posted by: Shrek | May 31, 2007 1:48:10 PM

Uncle Anon - your approach may be appropriate for someone with a very long time horizon, very deep pockets, and a very high tolerance for interim losses. OTOH, you've been around long enough to know that this can get a whole lot worse before it gets better, and marginal holders can get killed in the interim.

Posted by: Estragon | May 31, 2007 1:49:11 PM

Shrek - "Is there ever payback time or can debt be taken in ever increasing does forever".

In theory, debt (as expressed in fiat currency) can expand forever and without bound. Of course, in theory, communism works.

Posted by: Estragon | May 31, 2007 1:56:08 PM

Speaking of debt, from Bloomberg in an article asserting the faulty reliance on agency ratings of structured finance:

"U.S. banks have invested as much as 10 percent of their assets in CDOs, and the OCC requires that all of those CDOs be investment grade, says Kathryn Dick, deputy comptroller for credit and market risk. ``We rely on the rating agencies to provide a rating,'' she says."

That may help explain how banks keep margins and earnings up in a hostile rate curve environment. The subprime dreck is buried so deep in these products that the banks may not know themselves what their exposure is. They won't see it until the agencies re-rate, and that won't happen until the actual loss experience is determined. In other words, after the bank management have cashed their bonus checks.

Posted by: Estragon | May 31, 2007 2:11:43 PM

It's always a great time to buy.

Housing always goes up.

People don't buy houses like they buy stocks.

There is no housing bubble.

My city/town/neighborhood won't be affected because it's different here.

If there was going to be a recession/depression/hyperinflation/cheeseburger shortage, it would have happened by now.

The stock market is hitting new highs, what could be wrong?

Sample. Loop. Play on each key up the keyboard in quick succession. It gets even funnier about an octave above the original pitch.

Posted by: dark1p | May 31, 2007 2:17:16 PM

Estrogon, I think people here are looking for painless profit. It mostly doesn't work that way in real estate. There are unique periods of time when you could buy anything and flip it for a profit. But those times are truly few and far between. The transaction costs on real estate are very high. So high that, in normal times, it usually takes several years before a homeowner can recover cost or make a small profit when selling.

Those who don't have long time horizens and a willingness to sacrifice should probably wait for the start of another bubble before buying. But that won't be for another ten or fifteen years down the road. In the mean time those with long time horizens and the willingness to take risks and sacrifice will be buying up all the good real estate. When those too afraid to buy now are ready to take the plunge all that will left will be overpriced cookie cutter condos.

Instead of waiting what people should be doing right now is looking for the perfect home to buy. This means avoiding new developments and looking in older neighborhoods. It is a lot of work and takes a lot of time but the rewards are beyond measure.

Posted by: UncleAnon | May 31, 2007 2:27:30 PM

It seems a lot of people believe that real estate prices must fall as those who bought housing using creative financing of one sort or another give up their homes and put them on the market for resale.

This is not going to happen to the extent they think it is going to happen.

Look. Traditionally real estate purchase, or investing, required the buyer to make significant sacrifice BEFORE they bought a house. Granted, creative financing allowed many people to buy a house without the same degree of sacrifice. BUT what you have to understand that once in a home a homeowner has a vested interest that borders on mania to keep from losing that home if losing it means going back to renting.

So the sacrifice will come after they are already in a home instead of before they buy one.

A much smaller percent of people will lose their homes to foreclosure due to mortgage resets etc. than many of you think as most borrowers will find a way to keep their homes.

Posted by: UncleAnon | May 31, 2007 2:51:16 PM

As a non-RE investor (wish I was, but I'm just eeking by now) what would the consensus predict for the following situation:

Bought a starter home 5 years ago. My eldest child will be starting school in less than 2 years and I definitely need to switch school districts before then. As for starter homes how does anyone see them loosing value vs. the next step up? Ideally I'd love to hear that the answer is starter homes barely go down in value vs. the next step up which will take a beating. This is in the Minneapolis market.

Posted by: montaigne | May 31, 2007 2:53:06 PM

While there is no question the pricing stats are crazy, don't dismiss UncleAnon's larger points. Location/quality still matters.

I live in a very popular suburb of DC with some of the nation's best schools. Houses in good locations still sell quickly--what I can't tell you is what price concessions are being made. The marginal properties still have big problems.

I think the wild card/second shoe to drop is interest rates. Don't forget, this whole blowup occurred with FLAT to DOWN mortgage rates on the long end! 50-75 basis points up on mortgages will not be pretty if it happens.

BTW, MAKE SURE you read the referenced Bloomberg article!!!! Really great stuff....Kudos to them.

Posted by: Jay Weinstein | May 31, 2007 2:53:20 PM

December 2008

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