Home Inventory Dwindles Into The New Year

Existing Home Sales jumped another 6 percent in November, the report's third month of improvement since bottoming in July.
According to the National Association of REALTORS®, a quarter-million more existing homes were sold during the annual period ending in November as compared to October.  An "existing home" is a home that cannot be considered new construction.
Additionally, the national housing supply dropped by a full month. At the current pace of existing home sales, the complete stock of homes for sale will be exhausted in 9.5 months.
November's strong housing data is yet another signal to buyers in Palmyra that the housing market's foundation has been rebuilt, and that a rebound is imminent.  It's helped that there are great "deals" on which for buyers to pounce.
In November, short sales and foreclosures accounted for one-third of all existing homes sold, and carried an average price discount of 10 percent and 15 percent, respectively, as compared to non-distressed sales.
Repeat buyers continue to power the market, too, representing more than half of all home buyers.

• First-time buyers : 32% of all buyers
• Investors : 19% of all buyers
• Repeat buyers : 51% of all buyers

This breakdown suggests that housing has regained its footing. First-time buyers can't support a market long-term like repeat buyers can and, as compared to 12 months ago, the percentage of repeat buyers is now up 14 points.
Home buyers take note. Raw sales volume is rising and available inventory is dropping. Basic supply-and-demand tells us that this will lead home prices higher. Furthermore, mortgage rates are rising quickly, increasing the cost of homeownership.
If buying a home is a part of your plan for 2011, consider accelerating your purchase time frame. Existing homes account for more than 80% of homes sold nationwide. If the market keeps improving like this, your home affordability will worsen.

Housing Starts Data Hints That Housing Will Expand Even After The Tax Credit Expires

As a real estate broker whose company's largest concentration is on the existing housing market in Philadelphia and South New Jersey, I only pay a little attentionb to the new housing market. Especially since that market has really been in more of a clean up than expansion mode for the past several years. After all, the existing inventory needs to shrink before we worry about about creating new inventory doesn;t it? It seems that there are indicators that the inventory has been shrinking and that the market has been changing. After a strong March showing and a surprise upward-revision for February, Housing Starts are, once again, trending better.

It's a significant signal that the housing markets in Philadelphia, Mount Holly and nationwide are stabilized.
A Housing Start is a new home on which construction has started and, over the last 6 months, home builders are averaging one half-million starts per month.
This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago.  Revisions to prior data have all been higher, too.
Even more interesting, though, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.
Housing permits are an important data point in housing because permits are precursors to actual housing starts.  According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
Therefore, because March's housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.
This, too, reflects well on housing because the federal home buyer tax credit won't be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even now that the tax credit expires. And, as you may have noticed in my other posts, I sort of think that's happening as well.

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Better Housing News Flashes - From 1935

75 Years ago, in 1935 a suffering housing market was being returned to normal through a new housing stimulus package based upon the creation of the Federal Housing Administration and the use of mortgage products that allowed people to pay off the debt during the term of the loan.

From the Internet Archive's Prelinger Archives comes this reminder that housing always recovers first, and that even in times that seem to be challenging financially, recovery begins when people take advantage of new programs to get the benefits of home ownership.

I hope you enjoy this film as much as I did - whether its watching the construction process, the latest amenities in the house (like the built-in ironing board and cabinets in the kitchen) or the billboard at the end showing the price, down payment and monthly payments for a new detached single family home - and remember, 75 years from now people may be just as amazed at the values in our housing market!

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Home Buyer Tax Credit is Extended and Expanded!

Image via Wikipedia

In my last market statistics post , I mentioned that an extension of the $8,000 first time home buyer tax credit would be a real incentive for people to continue buying even in this traditionally slow time of year.

Congress must have been paying attention (or I tripped on something that other people agreed with!) and the $8,000 Tax Credit was extended this week. In addition, people who have owned their homes for 5 consecutive years (out of the last 8 years) can now get a $6,500 tax credit when they buy a new home.

With the threat of higher rates in the first quarter of 2010, and affordable houses all over the Philadelphia marketplace (which includes South New Jersey and the surrounding counties) , now may be that perfect moment - if people don't get too complacent about the housing market and assume that they'll still be able to reap the maximum benefits from the convergence of rate, price, and tax credits. I guess the only way to find out what the public's reaction will be is to wait and see -

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Philadelphia and Surrounding Counties Market Statistics

Image by reeltor99 via Flickr

As Congress discusses a 6 month Extension of the First Time Home buyer Tax Credit with an additional credit for repeat home buyers, the results of the initial credit seem to be obvious when we look at the Pending Sales Market statistics from September for Philadelphia and surrounding counties.

Pending Home Sales	Sept 2009	Sept 2008	% Change
Philadelphia	1287	941	36.77%
Bucks	582	414	40.58%
Montgomery	739	571	29.42%
Delaware	526	366	43.72%
Chester	492	354	38.98%

With such substantial increases in the pending sales for all five counties, its obvious that our housing market has recovered substantially. Though its tough to know exactly how much the tax credit influenced this, logic tells us that it has had a substantial impact. When we add to this the decrease in inventory, we see what would be defined as a recovering real estate market.

Current Home Inventory	Sept 2009	Sept 2008	% Change
Philadelphia	9,704	10,559	-8.10%
Bucks	4,011	4,262	-5.89%
Montgomery	5,276	5,718	-7.73%
Delaware	3,542	3,697	-4.19%
Chester	3,924	3,997	-1.83%

So what does this mean for the next 6 months?

• With a tax credit extension, motivation for first time home buyers will continue
• A tax credit for repeat buyers will increase motivation for a new group of buyers
• Shrinking inventory generally means competition between buyers for more desirable homes and possible upward pressure on prices.
• Though the tax credits are significant, the 6 month window is still a limited window off opportunity.
  
• The limited opportunity provides substantial additional motivation for buying even at a time of the year which is traditionally slower because of the retail market.

So though there is still uncertainty about the unemployment numbers, and we have not seen a great resurgence in consumer confidence yet, it does seem that in the house buying arena, there are substantial reasons for potential home buyers to get off the fence and take action now to benefit from the combination of affordable prices, low mortgage rates, and tax benefits that may not be extended again in the more active spring market.

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Housing Starts Post 8th Gain in 9 Months

Housing Starts on single-family homes gained last month, marking the 8th time that's happened this year.

A "Housing Start" is a home for which the foundation has been excavated and, considered alongside other key market metrics, September data suggests that the housing market stabilization is complete.

Momentum in housing is overwhelmingly positive:

• Homes under contract are soaring
• National home supplies are way down
• Home values are up in a lot of markets

Despite the positive news, the press is calling September's Housing Starts data a "bummer". Citing a drop in monthly building permits, the media purports that housing will slow in the months ahead.

The conclusion may be right, but the rationale may be wrong.

The probable cause for fewer permits isn't that the housing market is overdone. It's that home builders are choosing to exercise caution given the pending expiration of the First-Time Home Buyer Tax Credit and a still-growing number of foreclosed homes.

It's unclear what housing demand will be beginning in December and the last present a builder wants for the holidays is an excess of inventory.

It makes sense that building permits are down, in other words. In our marketplace, where new homes are not the most significant part of the housing inventory, unlike primarily new home communities like areas of Nevada, a Florida, the increase or decrease of housing starts may be less significant in any case.

Looking back at February of this year, there's a host of signs that housing is on the path to recovery. Now, that path won't be a straight line and there's bound to be setbacks, but September's Housing Starts is not one of them.

Housing Starts are up 40 percent on the year. WHich does indicate that ate the very least we have passed the bottom of this contraction.

More Information That The Housing Market has Reached Bottom

The national housing market got three pieces of good news in 3 days last week:

• Monday: Existing Home Sales up
• Tuesday: Home values appear higher nationally
• Wednesday: New Home Sales up

And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it's time to get off the sidelines.

At least, that's what the data is showing us. According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.

The stimulus package's $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide. In Philadelphia's very affordable market, where price declines have been truly nominal compared to those in many parts of the country, these first time buyers are seeing even more benefit from the program, and our company is seeing many people acting now to take advantage of the incentive.

But lest we carried away, we can't forget that February's New Home Sales is still the second-lowest tally on record and that two months of data doesn't define "turnaround".

On the other hand, if the trend continues through the Spring Buying Season, we'll likely look back at Winter 2009 as the low point in housing. Since it has been my experience that we only recognize the end of any difficult period in retrospect, these indicators gain more significance in my mind.

(Image courtesy: LA Times)

Its Better to Buy Than Rent Again!

Image by drocksays via Flickr

One popular housing theory is that -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.

If that belief is a truth, a national return to rising home prices may be in store for 2009.

Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.

But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This, too, is thought to be a key element of the housing recovery.

In Philadelphia, typically the cost of owning has been very close to the cost of owning, and that fact, combined with the tax benefits of home ownership, and the financial stability of our housing market, has always tilted the scales in favor of owning a home. While our market has demonstrated remarkable price stability in light if the current economic issues, in many other markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

(Image courtesy: Wall Street Journal)

Low Rates + Too Many Houses= Opportunity

For the first time in over a year, the sales of "used homes" fell below the 5-million unit trendline, helping to push the total home inventory higher by 0.1 percent nationwide.

Based on the rate at which homes are selling nationwide, it would take 11.2 months for the existing housing supply to be exhausted. In our market, the existing housing supply would be exhausted well before that benchmark.

For home buyers, this is an opportune time for negative news on housing.

First, sellers know that between now and the Super Bowl, housing activity will be light. The general scarcity of buyers may force a seller to accept a bid he wouldn't have accepted otherwise.

Second, the economy is showing weakness and that, too, can concern a home seller. Buyers are less likely to extend themselves during times of economic uncertainty, further reducing the buyer pool and, again, putting pressure on the seller to "make a deal".

And lastly, because the government has been trying to force mortgage rates down as a way to stimulate the economy, the weak housing data is actually making it cheaper to finance a home. This means that a well-qualified home buyer can better stay within budget.

Each 0.500 percent rate reduction saves $33 per $100,000 borrowed.

It is important to remember, though, that the U.S. housing market is not national -- it's highly localized. This is one reason why national real estate reports can be misleading. Just as figures from Phoenix have little to do with statistics from St. Paul, even data from neighboring ZIP codes can vary. In our marketplace, prices have not been adversely effected, even though the number of homes sold in 2008 was less than in 2007.

The universal truth, however, is that a home that is priced fairly will sell more quickly than a home that is not. And, until the Super Bowl passes in 45 days, expect fewer buyers to be out there competing for them.

(Image courtesy: The Wall Street Journal Online)