By Dirk van Dijk

Housing Starts rose in November to a seasonally adjusted annual rate of 555,000 from 534,000 in September, an increase of 3.9%. The October numbers were revised higher from 519,000, so it is possible to see the increase as 21,000 or 6.9%.

Relative to a year ago, they are down 5.8%. Quite frankly, a year ago was a pretty lousy time for the home builders, as well.

If one looks at only single-family houses, the improvement was somewhat better, rising to 465,000 from 435,000 in October (revised down slightly from 436,000), an increase of 6.9%. The volatile multi-family (condo and co-op) sector plunged 18.2% to an annual rate of just 72,000 (although October was revised much higher to 88,000 from 74,000 units). Year over year, single-family starts are down 5.8% and multi-family starts are down 7.7%.

The total starts number was above consensus expectations of a 545,000 annual rate. While the increase, the upward revisions and the beat of expectations are all good news, at least in terms of short-term economic growth, one should not forget just how depressed things are in the housing market.

Housing Starts peaked in June of 2006 at an annual rate of 2.273 million. We are thus still 75.6% off of the peak levels.

Housing Starts Extremely Important
It is hard to overstate just how important housing starts are to the economy. Yes, at this point, residential investment has declined to the point where it looks almost insignificant — just 2.22% of GDP in the third quarter, down from over 6.34% of GDP at the height of the housing bubble. However, historically, residential investment — of which new home construction is the largest part — has always been the main locomotive in pulling the economy out of recessions.

Take a good hard look at the first graph below and the relationship between when the lines bottom and the light blue recession bars. If you want to know why this recovery seems so anemic, look no further than this graph.

Even the 2001 recession, which was not caused by a housing downturn, saw a sharp acceleration in housing starts as the recession came to an end. Of course, since starts were jumping but were not starting from a depressed level, that boom later became known as the housing bubble that put us in this mess to begin with. Every other recession was preceded by a sharp fall in housing starts. 

PS. Make sure you Follow Us On Facebook and our weekly Radio Show!

SellMyHouse.com Radio Network

Youtube

FaceBook

Twitter

TheDealMagnet

atlanta · Bank Owned · birmingham · cashflow · cheap houses · chicago · contract for deed · fannie mae · Foreclosures · Freddie Mac · ft lauderdale · guru · Home Prices · housing market · jacksonville · jason roberts · Lead Generation · miami · nashville · orlando · palm coast · real esate expert · REO · roi · sell my home · sell my house · short sale · st louis · tampa · tax sales · todd snipes · we buy houses

Foreclosures

RealtyTrac has just reported that even though the volume of foreclosed homes plunged by 25% from Q2 to Q3 and 31% from Q2 of 2009, the discount on foreclosed homes has hit a five year high, as interest in even ultra bargain properties has collapsed following the expiration of the homebuyer tax credit, and confirming yesterday’s bad Case Shiller (remember that one?) number. Per RealtyTrac: “foreclosure homes accounted for 25 percent of all U.S. residential sales in the third quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 32 percent below the average sales price of properties not in the foreclosure process — up from a 26 percent discount in the previous quarter and a 29 percent discount in the third quarter of 2009.” Yet despite the major price drop, buying interest has evaporated as nobody there is no longer any purchasing power left in the lower and middle sections of the housing market: “a total of 188,748 U.S. properties in some stage of foreclosure — default, scheduled for auction or bank-owned (REO) — sold to third parties in the third quarter, a decrease of 25 percent from the previous quarter and a decrease of nearly 31 percent from the third quarter of 2009. The average sales price of properties in some stage of foreclosure was $169,523, down 2.46 percent from the previous quarter and down 0.44 percent from the third quarter of 2009.” And while the average price of non-foreclosed homes posted a slight uptick in Q3, the volume drop was even worse: “The average sales price of properties not in foreclosure was $249,721, up 6.42 percent from the previous quarter and up 4.36 percent from the third quarter of 2009. Sales volume of non-foreclosure properties decreased 29 percent from the previous quarter and nearly 31 percent from the third quarter of 2009.”

• Freddie and Fannie are clearly bankrupt but continue to get tax payer funding.
• Interest rates will have to move higher and government incentives have gone by the wayside.
• It is very difficult to get a mortgage right now, and most are coming in one form or another from the government agencies, which are in very bad shape.
• What really scares sellmyhouse.com, is the fact that there are so many foreclosures in the pipeline and default notices have increased over the last few months, not decreased.
• The supply side of the equation is about to be throw out of whack again, and that is never good for prices.

Preparing for this, if it does unfold as we suspect, will be about surviving the next year or so. Large inventory + low mortgage base = owner financing explosion. Only time will tell if we are correct but we began positioning for this a few months ago with our new website and service.

A recap and links provide the story:

1. Foreclosure Inventory = 103 Months
2. New Home Sales Still Ailing
3. Home Prices Fall in Major Cities
4. Despite Positive Signs in Housing, More Declines Expected
5. The Mortgage Problem Hasn’t Gone Away
6. Does Freddie Mac Deserve Another $10.6 Billion?
7. Fannie Mae: Where the Bankrupt Only Get More Bankrupt
8. The Disconcerting Truth About Fannie and Freddie Default Rates

SellMyHouse.com Staff Writer

However, the real scary issue is relayed in a recent Charlie Rose interview with housing expert Robert Shiller:

Charlie Rose: You’ve said that 90% of the housing market is supported by the government.
Robert Shiller: Well, it’s 80% or 90%. Really almost the whole market now is government. And we know this can’t last.

Rose: And that means prices are being artificially inflated?
Shiller: It seems to. Government support is especially prominent in sales of existing homes, which shot up to over 6 million on an annual rate in November 2009, the month that the home buyer tax credit initially was supposed to expire.

Fannie Mae has reported the rate of serious delinquencies (90 Days overdue) for conventional loans in its single-family guarantee business jolted to to 5.52% in January from 5.38% in December. This is a 100% increase since January 2009. But look at the chart below and explain to me how we are anywhere near an end to this housing crisis!

It is our stance that we still have some real issues to work thru before we can claim “an end to the housing crisis”.

Jason Roberts

Founder & CEO

www.SellMyHouse.com

The report “may signal the early stages of a second surge of home sales this spring,” said Lawrence Yun, NAR’s chief economist.

Home sales were spurred on after a sluggish winter, partly because the government extended the deadline to qualify for a tax credit. First-time buyers can get a tax break of up to $8,000 if they sign a contract by April 30. Lawmakers also added credit of $6,500 for existing homeowners who move.

The biggest month-to-month increase was in the Midwest, where pending sales rose by nearly 22 percent. Sales posted gains of 9 percent in the South and Northeast, but fell nearly 5 percent in the West.

www.SellMyHouse.com

Staff Writer

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be the amount of unemployment insurance, for three to six months. In some cases lenders may allow a borrower to skip payments altogether.

Haven’t we been through this already with the loan modification programs of the past year? Less than 200,000 permanent loan modifications have been secured since the program was enacted.

The new wrinkle will be the administrations push to deal directly with the massive number of mortgages that are ‘underwater’. They could offer financial incentives for the first time to lenders to cut the loan balances of such distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the FHA.

I do think this could help stop people from walking away just because it is underwater who can actually afford their house payment. However, as a general thought, it feels a lot like just one more government attempt to help boost numbers thru the remainder of the year so that we can get past the elections.

Lets be honest, government attempts to resolve the housing crisis have been a miserable failure. More importantly, it has strapped the tax payer with a debt level that has never been seen in this country’s history. That will have a much longer negative effect on the housing market than the false boost we have been given from the tax credit offered.  Despite billions of dollars in government incentives, home sales and new construction totals are sinking, not expanding. 

The truth, as hard is it may be to accept, is that this is a supply and demand issue. Until supply is worked thru, the housing market will not recover substantially. The foreclosure inventory has to be taken out of the system. New home builds will not recover until ‘cheap’ houses are not an option to purchase. Who in their right mind would pay $300,000 for a new house when they can buy a similar house with more square footage that is only a few years old for half of that total?

Existing house values rise as a direct result of new home construction. New housing construction has also proven to be a leading indicator for an overall economic recovery.

To me it is pretty simple, we fix the problem by expediting the foreclosure inventory thru the system as quickly as possible. Until that excess inventory is removed from the system, the housing market will not recover. HAMP and other government programs will just drag out the inevitable supply and demand issue.

I wrote an article last fall discussing my ideas on how to fix the problem. I’ve been in countless board room and conference call discussions with industry leaders about this very thing. I’m still convinced to this day that dealing with supply will ultimately resolve the demand issue, and event he economic problems we face.

Jason K Roberts

CEO

www.SellMyHouse.com

Highlights of the report:

• 7% higher than February 2009
• Weather affected closing schedules
• Housing inventory rose 9.5% to 3.59 million units or 8.6 months of supply
• 26% of transactions were cash purchases
• Distressed sales made up 35% of transactions
• Median house prices fell 1.8% to $165,100.
• First time homebuyers made up 42% of transactions.
• Northeast rose 2.4%
• Midwest rose 2.8%
• South retraced 1.1%
• West dropped 4.7%

Home sales surged on the back of a $8,000 tax credit for first-time buyers, but have faltered 3 months in a row. This raises worries that the housing market may be in for a rough few years once the tax credit ends and interest rates begin rising due to the government plan to stop buying mortgages on the secondary market at teh end of March. The overall debt load now on the government balance sheet will result in higher taxes dropping the disposable income consumers use to buy bigger houses or vacation properties.

This data shows that the people who need housing are buying it along with investors looking for great deals. Current homeowners have not been inspired to use the governments new $6500 tax credit to purchase another house. That may be a direct result of the fact that 25% of houses are now worth less than their mortgage balance, so they cant sell their houses.

www.SellMyHouse.com

Staff Writter

For borrowers who are making their payments on time but are on the verge of default, the Obama administration’s loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.

Housing counselors say it’s unfair, especially because the news often comes as a surprise to homeowners.

“Why should people’s credit be hurt even worse when they’re trying to do the right thing?” said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.

And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.

“It’s a feeling of being duped,” she said.

The Treasury Department guidelines require that mortgage companies notify credit bureaus of the loan modification process.

Worse yet, we have heard multiple cases where homeowners are not getting their trial loan modifications made permanent. So not only are you struggling to stay current on your payment while taking a beating on your credit, there is no real way to know of the bank will actually allow you to continue on the new payment plan. Many times you are just paying a lower monthly payment over 40 years. Trust us, you arent paying less over time if this is the case.

www.SellMyHouse.com

Staff Writer

The Commerce Department said Tuesday that construction of new homes and apartments fell 5.9 percent in February to a seasonally adjusted annual rate of 575,000 units, slightly higher than the 570,000 that economists were expecting. January activity was revised up to a pace of 622,000 units, the strongest showing in 14 months.

Single family construction dropped 0.6 percent, declining to 499,000 units. The Northeast dropped by 9.6 percent and the South declined by 15.5 percent. Construction rose by 10.6 percent in the Midwest and 7.9 percent in the West.

Building permits fell to an annuallized rate of 612,000 units after having fallen a larger 4.7 percent in January.

Sales of new homes plunged 11 percent to a record low in January, the third consecutive monthly decline. Sales of previously occupied homes were down 7 percent, the sharpest drop since last June.

With the upcoming flood of foreclosures about to hit the market many economists expect we could be in for a long road ahead for the housing market.

www.SellMyHouse.com

Staff Writer