NAR Report

The U.S. Census Bureau and Housing and Urban Development Department on Wednesday released new-home sales statistics, which reveal that the slowing in housing sales inflated the supply of for-sale housing in January to its highest level since 1981.
Sales of new single-family homes fell to the lowest adjusted annual rate in about 13 years in January. And new homes spent a median 6.7 months on the market in January, which was the lengthiest time on market since May 1992, when the agencies reported a median 7.1 months on market.

Meanwhile, the National Association of Realtors has reported that the median price of single-family resale homes dropped 5.1 percent in January compared to the same month last year, with total sales for all resale home types dropping 23.4 percent.
U.S. foreclosure activity in January, as measured by the volume of total foreclosure filings, rose about 57 percent compared to January 2007, real estate data company RealtyTrac reported. And NAHB reported earlier this month that median-priced homes in about half of the 220 U.S. metro areas included in a housing affordability index study were unaffordable to median-income households during fourth-quarter 2007.
The U.S. home-ownership rate fell during the fourth quarter to 67.7 percent, which continues a slide that started in third-quarter 2004, and the wave of mortgage foreclosures that is a contributor to that decline "are sure to extend through 2008 and into 2009," Seiders wrote in the report.
Rate cuts by the Federal Reserve should continue in upcoming meetings in March and April, according to the report, "and the Fed could deliver even more monetary stimulus if conditions warrant."
He states that the Economic Stimulus Act of 2008, signed by President Bush on Feb. 13, does offer some glimmers of hope, as its temporary increases in loan-size limits "are bound to help the housing market in high-priced areas (like California) to some degree," though "it remains to be seen how much additional home buying will be stimulated over the balance of the year."
The report adds, "Expiration of the higher limits at year-end figures to be a serious problem in the likely event that the private secondary market for jumbo loans still is not functioning properly by then."And Seiders suggests that tax incentives for home buying could offer a boost to the housing market, if "coupled with policy measures that enhance the availability of mortgage credit," via federal and state housing finance agencies.

Spring forward

Real estate activity will start picking up this spring as first time homebuyers and investors begin making deals on bank owned homes. There are a number of reasons besides the longer daylight hours and hint of spring for my cautious optimism.

It has taken a year but lenders are finally getting organized. Banks deal in money, paper and credit pretty well. They buy and sell notes, service mortgages, extend lines of credit and pay and collect interest for the use of money. But they do a poor job of liquidating a large number of properties scattered around the country. Lenders were not prepared for the extent of the mortgage default crises and don't have the expertise or other resources necessary to manage a large number of foreclosures. A cautious beauacratic mentality is an asset when managing other people's money but a liability when attempting to make quick decisions and deals on real estate. They are learning.

Lenders have increased their staff of asset managers and are discovering what's required to sell homes in different regional markets. They are conditioning some properties, discounting the price of others and discovering which real estate brokers they can depend upon for honest advice and results. It has been an extended learning curve for lenders but starting to pay off with increased sales.

In addition to cutting their loses by selling foreclosed homes at discounted prices, lenders are doing what they can to prevent owning another one. Earlier this month Henry Paulson, the Treasury Secretary and Alphonso Jackson, Secretary of HUD, announced yet another new program to stem the tide of foreclosures. "Project Lifeline," is designed to keep seriously delinquent borrowers in their homes. Six of the country's largest financial institutions, representing over half of all home mortgages, have initiated measures that allow borrowers 90 days or more delinquent, the opportunity to put the foreclosure process on hold while lenders look for a way to make the loan more affordable. The program is an alternative to foreclosure for anyone serious about keeping their home.

The economic stimulus package will make it easier to buy or sell a home by increasing the conforming and FHA lending limits. Congress sets the maximum "conforming" loan limits for loans purchased by Fannie Mae and Freddie Mac and "government" insured loans for FHA. Currently, the maximum conventional loan limit is $417,000. Conforming loans receive the best interest rates while loan amounts above the Congressionally set maximum, considered "jumbo loans," carry substantially higher interest rates. The economic stimulus package will temporarily increase the maximum loan limits for conforming loans to $729,750.

The increase in the maximum loan limit will decrease the interest rate on home mortgages under $729,750. It will also help existing borrowers who currently have high interest jumbo loans and may want to refinance to a lower interest rate under the conforming loan program. Jo Perkins, president of the Home Building Association of Northern California, estimates an additional 350,000 homes nationally will be sold or about $44 billion in economic activity from this stimulus.

The new loan limits will not be much help for Sacramento County or the Central Valley where the average selling price of a home is under $350,000 but many other areas of the state have significantly higher average home prices including El Dorado County. Our county would also benefit if more Bay Area sellers could sell their home and become potential buyers for El Dorado County.

A sign of light at the end of the dark housing tunnel is the affordability factor. California housing is still the most expensive in the country but it is becoming more affordable. Our current housing situation was the result of many factors; one was the price of an average home became too expensive for entry-level homebuyers. The affordability factor dropped to the lowest level in 2006 when only 25 percent of California first-time families could afford to buy a home. This year the index has jumped to 33 percent. More potential homebuyers will translate into increased sales.

Another factor that got us into trouble was the excessive exuberance of the building industry, by publicly owned corporations based outside the Capital Region. The building industry over the last 25 years has transformed from small local builders who reside and work locally, to national corporations and their land development subsidiaries. These large national firms have capital commitments totaling millions of dollars, extending years into the future. Their stockholders and share price are driven by increased production, which lowers the cost of every home built by creating certain economies of scale and therefore increased profitability.

With evaporating profits from selling new homes below cost, builders are beginning to realize that less could be more (less building = more profit). Builders are reevaluating their expansion plans. They have put many projects on hold, downsized their existing commitments and are allowing options on land previously designated for development to expire. Large corporations have a tendency for inaction when adjusting to a changing market and usually over compensate when they do. Don't expect a shortage of new construction in the future but standing inventory is half what it was 1-year ago. In the immediate future, builders will be more cautious about out-producing sales. Fewer new homes will be less competition for existing ones.
If interest rates remain under 6 percent, home sales will start improving this spring. Savvy investors are already taking serious interest and many of my colleagues are reporting first time buyers are making great deals on well-priced bank-owned homes. It's going to be a long way back for real estate but should start this spring.

Economist for builders speaks out.

The chief economist for the National Association of Home Builders, in his latest annual forecast, said he expects total housing starts to fall 25 percent this year, with single-family starts plummeting 31 percent. The decline will be steeper in the Capital Region. "We still expect starts to begin edging up in the final quarter of this year, but we've also trimmed the outlook for 2009," Seiders stated in a forecast report released last week.

Seiders acknowledged that there is "a nearly even chance" that the economy will slip "into the red zone during the first half of the year." He anticipates "further deterioration of labor market conditions in February, and the unemployment rate almost certainly will be moving up in coming months." He also expects gross domestic product growth of less than 1 percent in the first half of 2008, "and a mild recession certainly is possible during that period," the report states.

A record volume of vacant homes for sale "inevitably will put persistent downward pressure on home prices, further sapping the quality of outstanding mortgage credit and making it even more difficult to refinance or restructure adjustable-rate mortgages facing payment resets," the report states. Financial market turmoil is continuing, Seiders noted, as "the stock market is being battered and the markets for longer-term credit remain under considerable strain.
"The freezing-up of private securities markets, both here and abroad, has shifted credit demands to government-related securities markets and to depository institutions -- resulting in higher loan volume and pressures on capital positions at the depositories."The banking system will have to take up a good bit of the slack in the credit creation process." That has led the banking system to tighten lending standards, which has "afflicted all components of the conventional home mortgage market," he stated in the report.