The media has begun its assault on the weakening real estate market, but is it weak? Not really, at least not around here.
Over the last nine years, NSDCC detached-home sales have averaged 223 closings per month, and up until last year, there was only one month that totaled over 300 sales – the 304 in June, 2005.
The red line below shows that recently we have had several months around the 300-sales-per-month mark:
Back in the last frenzy, the 2002-2003 era, we averaged 319 sales per month, but it was at an average $325/sf. Now that we are over $400/sf and hitting roughly the same monthly sales counts, there isn’t anywhere to go except down.
We have experienced elevated levels of sales over the last year or so – rarely have we ever sold 300 houses per month. If we settled in at 275 sales per month that averaged $375/sf, it would be a healthy market. But statistically it will look like the sky is falling, compared to where we are now.
Diana: The enormous drop in July new home sales really shocked the market and today the bears are taking on the bulls in force. Let’s recap for a second.
July new home sales dropped over 13% month to month. existing home sales actually bumped up a healthy 6 .5%. why the skep? New home sales numbers are based on signed contracts in July and existings are based on closings which were contract signed in May or June.
If you take a look where rates went from May through July, the jump from 3.5 to over 4.5% according to (doomer) analyst Mark Hanson made houses 15% more expensive and it is just the rates. Home prices up over 8% from a year ago ascoreding to a new report today from Lender Processing Services and this is a lower reading than others like Case-Shiller. They claim a larger survey sample and more accurate way of accounting for the impact of distressed sales on home prices, we know fewer stressed sales and you have rising rates and rising home prices and I call it a toxic cocktail for housing on the new home numbers.
Seabreeze partners says housing ‘blew up’ and others claim it is just seasonal.
One more factor is investors. They have been fueling housing for the past few years and pumping up prices in the hardest hit markets and they made up just 16% of buyers in July according to the realtors and that’s down from 22% in February and first time buyers are not filling in, not coming back and still at less than a third of the market and should be over 40%.
So the bulls are saying, well, one month does not a trend make.
I will say I have never heard more bears out than I have today, not in the last couple years anyway.
CNBC: Diana, stick around while we talk about this with Mike Murphy, our resident housing bull. It is undeniable at this point it is having an impact if you listen and look at Diana’s report and the charge that she showed. you have a serious issue, investors dropping off and first time home buyers.
Murphy: Here is one thing I point out. the numbers don’t lie. you talked about rising mortgage rates. I would argue, being bullish on this space, I would argue that mortgage rates have risen and that’s the past, and going forward, there is nothing out there really to tell you that rates are going to continue to rise and they have leveled off here and we also know and I think this is a key point, we know that the administration is very focused on keeping the housing recovery going. would you agree?
Diana: Yeah, but I would argue that you saw this jump up in rates two months ago and that had a lot of people on the fence jump off and jump into housing and worry that rates were going to go even higher and so you did have that bump up in sales that we saw through the summer and I wonder if that’s not going to be pulling numbers forward from the fall home sales. I just got off the phone with Glenn Kelman and he is seeing a huge slow down in existing home buyers now and says arm chair investors who are using credit are getting out. We may think that mortgage rates aren’t going much higher, but a lot of folks out there think they still may.
The mid-range market isn’t getting much help from defaulted properties – here’s a look at last month’s foreclosure notices sorted by home size and their estimated value:
Mortgage rates jumped into the mid-4% at the end of June, and most of us thought that would put a damper on sales by the end of summer.
Buyers who had locked their rate for 30 days were able to close in July. By August, you’d think that we’d be seeing some evidence of market slowdown.
Incredibly, the market has kept up, at least for now:
NSDCC Detached-Home Sales
Month
# of Sales
SP Avg $/sf
Aug 2012
298
$381/sf
Jul 2013
295
$418/sf
Aug 2013
263
$435/sf
In the last two days of August, 2012, we closed 48 sales. With two days left this month plus late-reporters, we should end up with well over 300 sales, with average pricing up 4% over last month! Wow!
Santana brought the Latin Rock Fusion to Woodstock. They started at 2:00 pm on Saturday, the 16th of August, 1969. Relatively unknown for the audience, Santana hit the nerve of the party crowd quite well.
Their debut album Santana was released in the same month. The band had just played local gigs in the San Francisco area so they were relatively unknown. Their set was powerful and magical at the same time.
Carlos Santana claimed he was tripping on LSD throughout most of the performance and was hallucinating that his guitar was a snake; nevertheless, he performed flawlessly. He was 22 years old at the time.
Reprinted with permission from the SD Daily Transcript:
The California Coastal Commission will consider an appeal of a permit granting Mitt and Ann Romney the right to demolish their existing 3,900sf La Jolla house and build a more-than 11,000sf mansion on Sept. 11.
The Romney plans at 311 Dunemere Drive call for a two-story over basement home with an attached four-car garage, hardscape, and retaining walls, with an existing pool, spa, and seawall to remain on a 17,860sf beachfront lot. The Romneys acquired the existing home for $12 million in 2008.
The new plans would add an elevator for the Romneys’ automobiles and about 3,600sf of basement area, and would roughly double the main living area of the home.
Read the story of the former neighbor from across the street appealing the unanimously-approved permit even though he sold his4,141sf house for $3,560,000 in 2012 and moved to Monterey (click on link below):
Headlines everywhere are touting how rising rates are slowing down the real estate market. The experts jump to conclusions, and the media loves bad news. One of our favorites is front and center today – Lawrence Yun. From cnbc.com:
“The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown,” NAR chief economist Lawrence Yun said in a statement. “However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West.”
Mortgage rates are the same everywhere, and your location isn’t what determines whether sellers and buyers are coming together.
Experts postulate about who or what to blame, and not on how to fix it.
You can blame any reason on the list for fewer sales:
Rising rates (they have stalled)
Low inventory
Tight credit
Investors/Wall Street
Syria
Government
Builders
Realtors
Chargers
Padres
Jim the Realtor
If Lawrence Yun was actually a realtor and looked a little deeper – or the media would ask more questions – then eventually the reason that pendings are down anywhere would be discovered:
Sellers aren’t adjusting their price enough to satisfy the buyers.
Lawrence Yun and others are always quick to blame external events, but as our spokesman, he should offer the solution – price will fix everything!
An excerpt from cnbc.com’s interview with Robert Shiller:
CNBC: We have the twenty-city up double-digits for the fourth straight month. what do you make of that?
RS: Well, obviously, we are in a housing recovery, at least for the short term. I have always been less sanguine about this one, but housing is a market with momentum, and right w the momentum is up.
CNBC: Professor Shiller, it looks like there are some peaking in the rates, but I mean the spike in rates, but you say that of only six cities where the prices were rising faster than a month last, and so is that some diminution of the game?
RS: Well, there are some, yeah, there are some weakening signs and the starts are down, and especially in the single-family realm. i think that there is a chance that there is weakening, and there is a all of the fear about the thing that is a cloud over the housing market right now.
CNBC: You seem reluctantly positive, and you have seen it for a long time. I mean, you almost feel like you want to say, ah, it is not for real.
RS: Well, none of this is for real. The housing market has gotten very speculative and it goes through the big cycles. Take California for example. It is and up and down and up and down and decade by decade and it does not go anywhere, but a roller coaster, and that is the way that the markets have become. So for a long-term buyer, the fact that they are going up now does not mean a lot about where it is going to be when you finally sell.
CNBC: We have seen big disappointments and you have mentioned the starts a and the new home sales also disappointing and the soften ing in the terms of the purchase mortgage applications, do you see those trends continuing through the back half of the year?
RS: I think that there is a risk of a weakening housing market. It is a speculative market, and this has been not by research, but by irrational exuberance and that can suddenly change. It is a story, and evolving story, and nobody who can really predict this for sure. It is risky.
