Unlocking the Housing Market Recovery is our independent report that offers suggestions for housing stabilization. To download the white paper, PowerPoint or a 30-minute webinar, visit:
http://www.realestateconsulting.com/video/housingrecovery.aspx
The latest national statistics signal that we are headed for a depression. Stabilizing home prices is central to a national economic turnaround. The following is the order of priority needed to stabilize prices:
- Stabilize the Banking System
- Stimulate Job Growth
- Stimulate Responsible Home Buying
- Stimulate Responsible Loan Modifications
Today, details of the House version of a new Stimulus Bill proposal are being scrutinized. Some of our report’s recommendations are included, and others have already been accomplished. But there is more we’d like Congress, in conjunction with the Federal Reserve and U.S. Treasury Department, to be considering.
Many of you are well-connected to influential people. Please feel free to forward this work to anyone who can make a difference.
Economic Growth…………………………………………………………………..D
With the national economy well into a significant recession, production and labor markets have severely contracted, while earlier inflation concerns have all but dissipated. The non-farm payroll job sectors have lost more than 2.8 million jobs in the last year, and the year-over-year drop of -2% is the largest since 1982. The unemployment rate reached 7.2%, which is the highest level since January 1993. Mass layoff events – job cuts of more than 50 jobs – have risen 75% year-over-year. Real GDP growth witnessed its largest decline in 7 years, falling to a revised annual rate of -0.5% from 2.8% in the second quarter. Inflation fell again, with the Full CPI now at just 0.1% and the Core CPI (all items less food and energy) at 1.8%. Consumer spending continues to decline despite the ramp-up of the holiday season, as the year-over-year change in retail sales continued to decline, falling to -9.2%.
Leading Indicators………………………………………………………………..D-
Mixed results for many of the leading economic indicators reveal that, while the economy may be improving slightly in some aspects, a return to stability and positive growth will most likely not occur in the near future. Compared to the lows achieved in November, the stock market’s performance in December was an overall improvement. However, the market remains extremely volatile and the four major indices we track are still down 34-41% year-over-year. Homebuilder stocks improved in December from the previous month, but have fallen 32% year-over-year. The price of crude oil fell below the $100-per-barrel mark in mid-September amid heightened turmoil in the financial sector and has since fallen to a monthly average of $41.02 in December, returning on an inflation-adjusted basis to a level consistent with early 2004. The TED spread narrowed slightly this month and is well off its historical high in October, but still remains well above its historical average. Manufacturing in the U.S. continues to decline, as evidenced by the sixth consecutive drop in the Purchasing Managers Index in December to its lowest level since the early 1980s, indicating continued contraction not only in the manufacturing sector, but also in the overall economy.
Affordability…………………………………………………………………….C+
Affordability has steadily improved as home prices continue to decline and mortgage rates drop to historic lows, but the current recession combined with ever tightening mortgage lending standards have dampened any potential positive effects in the housing market. Mortgage rates declined to their lowest level in nearly 40 years in early January, falling to just above 5%. The Fed dropped the overnight lending target rate to a range of 0.00 to 0.25%, which is the lowest level on record, in order to battle deflation and jump-start the economy. According to the Mortgage Bankers Association, adjustable-rate mortgage applications declined to their lowest levels on record and currently make up less than 1% of all mortgage applications. By comparison, ARM applications made up more than 35% of total applications at their peak level in 2005. Meanwhile, the dollar volume of equity per owned home remains above $100,000, but the debt percentage of home value (LTV) is at its worst level in history.
Consumer Behavior…………………………………………………………………D-
The lack of consumer confidence continues to play a crucial role in the national recession and faltering economy. The Conference Board’s consumer confidence index worsened in December to its lowest level in the 41-year history of the index. The University of Michigan’s Consumer Sentiment Index increased slightly in December and again in January, but remains at depressed levels. The Consumer Comfort Index declining for the third straight month. As consumers cut back on spending, the personal savings rate continues to improve, gaining 2.8% year-over-year for a total of $298 billion in savings.
Existing Home Market……………………………………………………………..D-
Existing home market conditions deteriorated over the past month, with prices and sales volume declining and months of inventory increasing. The annualized existing home sales volume fell slightly below 4.5 million transactions in November from slightly below 5 million in October, according to the National Association of Realtors (NAR). The supply of unsold homes rose to 11.2 months of inventory despite a falling number of homes available for sale as resale activity slows. The volume of pending home sales fell in November for all four regions in the Country, and is down 5.3% year-over-year. The year-over-year change in the median resale price remains negative at -13.2%, with the current median value at $181,300, according to the NAR. The Case-Shiller Price Index also declined, showing an annual decrease in paired sales of more than 16%.
New Home Market…………………………………………………………………..F
The new home market continues to face significant challenges, with most market indicators declining over the past month. Builder confidence remained at its historical low, due largely to continued declines in current sales and expectations for sales over the next 6 months. The median new home price improved slightly over the past month to $220,400, but values have declined 11.5% over the past year. Annualized new home sales volume declined in November to 407,000 transactions, which is the lowest level since 1991. Due to a lack of sales activity, months of supply of inventory remains above 11 months, even as new home inventory continues to decrease.
Housing Supply……………………………………………………………………F
With sales activity at extremely low levels and an excessive supply of housing inventory, the supply of new housing has declined precipitously over the past year, including the lowest levels of starts on record. Both multifamily and single-family starts experienced declines, and total starts have fallen to 625,000 units. Single-family and multifamily permits also declined, resulting in a 48% year-over-year drop in total permits. The annual volume of new home completions rose slightly in November to nearly 1.1 million, but is down 23% year-over-year. Meanwhile, total housing stock is up nearly 2% year-over-year. The homeowner vacancy rate was unchanged and remained near a record-high level at 2.8% in the third quarter.
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