From the Wall Street Journal:
http://online.wsj.com/article/SB125081143925447971.html
The housing market has come out of its tailspin, lifted by falling home prices, low mortgage rates and an $8,000 federal tax credit offered to some first-time home buyers. But stability, to say nothing of strength, still looks a long way off.
The National Association of Realtors is expected to report Friday that sales of existing homes rose for the fourth consecutive month in July, up 2.2% from June, on a seasonally adjusted basis. Problem is, a lot of the action is in distressed properties.
A survey conducted in June of 1,500 real-estate agents sponsored by the trade publication Inside Mortgage Finance found that 36% of all sales involve “nondistressed” properties.
Of the nondistressed sales, only 31% were what the survey described as “unforced or optional.” The rest were sales by homeowners in some kind of financial or personal crisis.
“Think about that for a minute,” John Mauldin of Millennium Wave Advisors wrote this week. “Two-thirds of home sales are either foreclosures or banks taking a loss on the mortgage.” And only a third of the remaining one-third — roughly 10% of overall sales — comes from “something we could call a normal selling process.”
That first-timer credit has sparked sales, and the NAR expects a flurry of sales in the next few months, as the credit expires Nov. 30. At the low end, it is a “feeding frenzy,” says Jim Klinge of Klinge Realty in San Diego.
Meanwhile, the Mortgage Bankers Association said Thursday that the number of homeowners behind on their mortgage payments hit a new high during the second quarter, with more than one in eight homeowners delinquent or in the foreclosure process.
So it is likely that sales will stay mired on the low end of the housing barbell.
Last July, sales of existing homes hit a five-month high, leading the NAR to openly hope a sustained upturn was coming.
It wasn’t.
Today, home sales are roughly where they were last year. Given the state of the consumer and the rise in foreclosures, they may be at this point again next year.
“— roughly 10% of overall sales — comes from “something we could call a normal selling process.”
Perhaps this is why 90% of the properties we look at appear distressed. Flippers normally account for the other 10%, at bubble prices.
Jim, you’re so famous!
Jim, you think the feeding frenzy would lose any steam if the $8k credit doesnt get renewed?
Dafox,
The only thing that’s going to slow down this frenzy in the lower end is a substantial increase in distressed listing and the normal Q4 seasonal slow down. Investor are making up the majority of purchases on the low end.
Investor are making up the majority of purchases on the low end.
I dunno, CR had an article about how 43% of home purchases were by first time buyers, with 29% by investors and 29% by current homeowners. I will add the caveat that these were nationwide numbers, but I haven’t seen a breakdown specific to Southern California.
Buyer Breakdown
My current thought is this, there’s about a 10% chance the credit is allowed to expire. A 60% chance that it’s extended and a 30% chance that the credit is extended and expanded in some way (either $ amount, or expanded to more than just first time buyers). Certainly the NAR thinks the frenzy would slow down, otherwise they wouldn’t be lobbying to have it extended and expanded.
CR just put up another tidbit about housing.
This level of first-time buyers is completely unsustainable – even if another tax credit is enacted. There was significant pent up demand from potential first-time buyers who were priced out of the market in 2004-2006, and then were afraid to buy as prices fell. But demand from these buyers will wane. (Like “cash-for-clunkers” demand waned).
How much more demand is there really? I dont doubt the sustainability comment, but for how many more selling seasons can it go on like it is now?
Stock futures up on the new bull market.Better hurry up and buy stocks before they go up.Goldman sachs needs christmas bonus money.
Either our schools of journalism have failed us, like most of our other institutions, by graduating people who can’t write coherent articles, or, again, the corporate media is twisting the facts, trying to make lemon aid out of lemons.
I’m with Consultant.
“Jim, you’re so famous!”
And rightfully so! The LA Times, ABC’s Nightline, his blog being run by other newspapers (Bend, OR Bulletin for one), the (famous) appearance caught by ESPN cameras at “Manny Night” at a Padres game, and now the WSJ.
The list is just gettin’ started! Countless real estate agents across America, but there’s ONLY one Jim the Realtor…
NAR states fastest sales growth in 2 years for existing homes. Bernanke says we are nearly out of the recession. Stock market up another 1.5% today. All I feel is that we are being led blindly by babble in a modern version of George Orwell’s 1984. The EZ Speak says everything is great! Reality is a depressed mass population that is poor and out of work. Who do we believe? The modern EZ Speaker or our gut feelings?
I think there’s no local moving around. That is, selling your house to buy a larger place, selling your house to buy a smaller place, selling your house to buy a place closer to work. None of that exists, because it’s all optional and people are just waiting if they can because sale prices are so low (although if you think about it, that really shouldn’t stop such sales, since the replacement house will be cheap as well). Everythings either short sales for people who are going to lose their house, REOs after people already lost their house, probate sales after somebody died, people who have to move far away, or flippers picking up the destressed sales for cheap, shining them up, and trying to make a profit.
How much more demand is there really? I dont doubt the sustainability comment, but for how many more selling seasons can it go on like it is now?
dafox | August 21st, 2009 at 6:19 am
Many first time, low end buyers are having a very hard time finding a house. Supply is pathetically small. If this keeps up, there has to be at least another year or two worth of demand from them, even without extending the tax credit. If some houses get 100 offers, that means there’s 99 people who still want to buy a house out there.
Thanks Susie!
Were in a new era.Buy now or be priced out forever.
It would be nice to see a chart of first-time homebuyer activity (by volume, not %) over the last decade or two. That way we could gauge how close we are to satisfying any “pent-up demand”.
Furthermore, there has to be some segment of potential FHBs — like quite a number of us — that simply won’t buy at current prices.
I’m a first time buyer. Have no trouble finding a house I can buy. What the market lacks is merely houses priced correctly, but that can be solved through patience. Those houses with value sell within days.
The vast majority of low end housing is bought by investors. In some cases like Lucera in UTC, no banks will lend because of lawsuits so everything is 100% cash. You couldn’t buy at Lucera no matter how badly you wanted to, unless you had all cash or a private non-bank loan. Verano is a case of almost all investors buying from knife catching investors. Many banks will not lend there because of occupancy and HOA delinquency.
The fact that there are many first time buyers does not contradict the statement that most low end housing is being bought by investors. I’m a first time home buyer. Technically what I’m buying is high end. If I were looking at $200k and below properties, I simply wouldn’t buy except maybe as an investor. So there you go.
sdbri,
You may have mentioned before, but what’s your definition of “high end”?
“(although if you think about it, that really shouldn’t stop such sales, since the replacement house will be cheap as well).”
The selection of quality move-in homes tends to go all to hell. If you’re a longtime homeowner with equity you are somewhat insulated from the ups and downs of the market and the commission discounts and lower tax assessments of buying in a down market can be financially advantageous, but if you don’t see anything you like better than what you already have, what’s the point?
Have no trouble finding a house I can buy. What the market lacks is merely houses priced correctly, but that can be solved through patience. Those houses with value sell within days.
That’s what people mean that it’s difficult to find a house to buy. Inventory is light, and of the inventory on the market a lot of it is priced too high. This makes the true inventory very small and leads to a frenzy for anything of value.
BTW, I wouldn’t consider the CS numbers of what is “High end” to be accurate. While the index shouldn’t be impacted by the mix of sales, how they tier the low, mid and high is.
sdbri:
We are in the same situation as you.
I even went to courthouse auction to see how this thing works. As investor, I would also consider the lower end, and for my own house, I am looking for 3000sft in CV around 1M.
I even bought a few books about California Deed and Eviction. Just in case if I were to let go someday, I could see if I could make a living on the courthouse steps.
Ha ha ha… maybe I am just day dreaming….
Investors snatching up low-end houses doesn’t resolve the fundamental issue of too many houses for the demand ( and with the recession causing people to double-up, move back home, etc. demand is stalled or shrinking). The investors will either need renters and eventually buyers, and with with the $8000 frenzy now there won’t be many first-home buyers left in the future couple of years). Also once interest rates go up, investors will want to liquidate these houses. I too have been tempted to buy up a cheap house somewhere rather than let my money sit around earning 1%.
“Thanks Susie”. (JtR)
*Chuckle* The correct pronunciation is mahalo…
I missed the Manny night shot on ESPN. Was Jim wearing his dreadlocks ballcap?
tj, my point was just that homes under $250K are mostly being snatched up by investors. That’s about where statistically the low end tier (bottom 1/3) is. The top 1/3 is about >$400K – this is just a statistical measure for contrasting where the investors are, and not a measure of how nice or luxurious the houses are. We all know in California it doesn’t buy much. 😉
Jordan, what I’ve found is you just have to watch the MLS and redfin every day for the deals and know the area you’re interested in. You’ll see a $550K house sitting for 12 months, then a $450K house of the exact model will come on and sell that same week over and over. So my point is the volume of sales is there, and even the rate of fresh inventory is coming in at a decent rate. What we’re both pointing out is that the “stale inventory” isn’t much to look at.
In other words, don’t be discouraged by the pricing of stale inventory that’s sitting on the market. It has almost no relation to the houses that are actually selling and that you should be watching out for. Frankly I think the housing market will still decline some more, although interest rates may partially cancel out some benefit. In any case, that doesn’t mean that a good 50% of the houses actually selling are priced about right. Anything can be fixed by price, even a declining market.
I’ve seen the same thing sdbri describes — houses at last year’s prices moulder for months, while new inventory with a realistic price is gone in less than a week. Which of course makes you want to give a dope slap to the owners of the mouldering houses. Or maybe a “Price will fix anything” t-shirt.
JTR in the WSJ again. that is quite a thing to have been quoted in the WSJ on multiple occasions within a few months.
I don’t know why people don’t just throw in a market price offer to some of these unrealistic sellers. You maybe the first one they come back to when their head clears up.
I’ve called up a number of the agents for these homes. Even if the seller is willing to negotiate, the gap was just too wide to bridge. It’s usually an equity issue here.
If the house is 20% more than comps and the DOM is 3 months or more, they might give you a 5%-10% discount. I don’t think they’re toying with you, I get the sense they’re can’t or won’t sell at market price. Otherwise they’d have compromised months 1 or 2 already. So that brings us back to square one – your time is usually best spent on fresh inventory 1 month or less.