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Banks Sell 3x More Than Builders
June 13th, 2011 11:35 AM

Written by Jonathan Dienhart and Ken Lee   

Housing remains stuck in the doldrums even with extremely low mortgage rates and despite some improvement in private payroll employment.  Part of the reason for this disconnect is the slew of foreclosures and bank-owned properties which are still flooding the housing market.  Defaults are expected to reach new record-highs this year which have buyers holding out for better deals and traditional home-sellers battling low-ball offers from banks.  The aggressive pricing on distressed properties is undercutting individual home sellers and new home builders alike, and wreaking havoc on local housing markets.  According to data from Housing IntelligencePro, both new home activity and regular resale activity made up a smaller portion of total closing activity compared to the first three months of last year (and every quarter since).

Nationally, bank-owned real estate closings accounted for almost 32% of all settlements in the first quarter, a figure which has been steadily increasing over the last year.  Regular resales still made up the biggest chunk of settlement activity, about 60%, while the languishing new home market accounted for the remaining 8.5% or so of closing activity in the first quarter.  That means REO sales volume was more than three times higher than new home closings.  New home share has been cut in half since peak times, whereas regular resale share has decline by about one-fourth.  The continued rise in REO sales is not likely to abate any time soon, foreclosure rates are still elevated and according to some estimates, may increase this year. 

Housing data has been choppy thus far in 2011; a month up and then a month down with no real conviction either direction.  A notable lack of improvement seems to be the overriding theme.  New home sales have now increased incrementally for two straight months, albeit from all-time record lows that were set in February.  Existing home sales and housing starts both declined in April after increasing in March.  The next few months don’t look encouraging, with Pending Home Sales down substantially in today’s data release from NAR.  The private sector job market has been improving slightly and mortgage rates are near all-time lows but consumer confidence, especially when it comes to housing, is still weak.

In broader economic news, weaker economic data and re-emerging concerns of the Eurozone debt situation has hampered equities so far in May.  First-time jobless claims remained above the key 400,000 level for the entire month which suggests labor market conditions may soften once again.  Revised GDP figures this morning showed the economy growing at a lackluster 1.8% for the first quarter based on weak consumer spending.

The Economy
Preliminary estimates for first quarter gross domestic product were unchanged from advance estimates.  The U.S. economy grew 1.8% during the first quarter which is weaker than the 3.1% pace in the fourth quarter.  This is the slowest pace of growth since the second quarter of last year.  However, this marks the seventh straight quarter that the U.S. economy has expanded.  A drop in consumer spending was offset by an increase in business spending which caused preliminary estimates to remain unchanged from the first estimate.

The Leading Economic Indicator index declined in April to a reading of 114.0 which is a 0.30 point decrease from March levels.  This is the first month since June 2010 that the leading index has recorded a monthly decline.  Leading economic indicators had recorded nine straight months of increases before April.  A jump in initial unemployment claims along with noticeable declines in vendor performance, building permits, and manufacturers’ orders for capital goods were amongst the biggest drags last month.  April's slight decline in leading economic indicators suggests that economic growth will slow in the months ahead.

First-time unemployment claims increased by 10,000 to a seasonally-adjusted 424,000 in the week ended May 21st from an upwardly revised figure of 414,000 last week.  Jobless claims had declined in the two weeks previous to this past week’s increase.  This is the seventh straight week that initial jobless claims have remained above the 400,000 level.  These elevated levels in first-time jobless claims will make it difficult for continued improvement in the U.S. labor market.

Housing Market
The new and existing home markets moved in opposite directions last month.  New home sales continued to rebound from historically low levels in April while resale activity declined slightly.  Inventory in the new home market also improved to its most manageable levels in almost 5 years while existing home inventory continued to rise as sellers continue to list their homes for Spring home-buying season.

New home sales in April rebounded 7.3% from the previous month to a seasonally-adjusted annual rate of 323,000 units.  After hitting an all-time low in February, new home sales have now increased for two consecutive months.  New home sales in the previous three months were also revised higher by 7,000 units.  New home sales are still down 23.1% from the 420,000 units in April 2010 and are 4.2% lower than the April 2009 figure of 337,000 units.  However, it is important to keep in mind that sales activity last year was inflated by the federal homebuyer tax credit.

Increased demand helped keep new home prices steady last month.  In April, median new home prices increased to $217,900 from a March figure of $214,500.  Although this is the highest median new home prices have been since January, they remain at historically low levels.  Median new home prices are up 4.6% from this time last year but 0.6% lower than they were this time two years ago.  This is the first month new home prices have recorded a year-over-year gain since January.

Revisions to new home price data caused new home affordability figures to be revised higher in the beginning of the year.  The new home affordability ratio increased for three straight months to begin 2011 before declining in April.  The new home affordability ratio declined to 58.9% from 59.6% in the previous month.  An increase in median new home prices were the cause of the decline in affordability last month as mortgage rates remained unchanged.  New home affordability remains at historically high levels.

New home inventory levels reached new all-time record lows last month.  In April, new home inventories declined from the previous month to 174,000 units on a non-seasonally adjusted basis compared to 181,000 units in March.  New home inventory has now recorded 44 straight months of declines and has not recorded a monthly increase since May 2007.  New home inventory on a seasonally-adjusted basis declined to 175,000 units in April from a March figure of 180,000 units.  Months of inventory dropped in April due to the continued decline in new home inventory levels along with an increase in sales activity.  Seasonally adjusted months of new home inventory fell to 6.5 months in April from 7.2 months in March.  This is the least months of new home inventory on the market since June 2006.

Existing home sales in April eased slightly after last month’s gains.  Resale activity declined 0.8% from the previous month to a seasonally-adjusted annual rate of 5.05 million units.  Existing home sales were down 12.9% from April of last year which marks the third straight month that resales have recorded year-over-year declines.  However, these comparisons may be a bit exaggerated since demand was artificially driven by the federal homebuyer tax credit last year.  Pending home sales declined 11.6% in April, suggesting little improvements in the coming months.

Median existing home prices in April increased to $163,700 from $159,800 in March.  This is the second straight month that home prices have increased.  Existing home prices had reached their lowest levels in nine years in February before rebounding in the past couple of months.  The median price for an existing home is down 5% from April of last year which marks the fifth consecutive month that home prices have recorded year-over-year declines.

Higher home prices continued to push affordability lower in April.  The existing home affordability ratio declined for the third straight month after reaching all-time record highs in January.  The existing home affordability currently stands at 69.8% in April compared to 70.6% in March and 66.4% in the same year-ago period.

Inventory jumped in April as the market prepared for the busy home-buying season.  The number of existing homes for sales increased 9.9% from the previous month to 3.87 million units.  This is the third straight month that existing home inventory has increased.  A slowdown in sales pace along with the increase in inventory units pushed months of existing home inventory up to 9.2 months which is the highest it has been since November.

U.S. residential construction activity in April dropped 10.6% from the previous month to a seasonally-adjusted annual rate of 523,000 units.  Single-family housing starts fell 5.1% to a seasonally-adjusted annual rate of 394,000 units while multi-family building activity dropped 24.1% to a seasonally adjusted annual rate of 129,000 units.  The drop in construction activity in what is typically the busiest time of the year for the housing market suggests that conditions will remain sluggish for quite some time.

Building permits decline 4.0% from the previous month in April to a seasonally-adjusted annual rate of 551,000 units.  Most of the declines were attributed to weakness in the multi-family segment while single-family building permits eased just 1.8% from last month to a seasonally-adjusted annual rate of 385,000 units.  The slowdown in permit issuances also points to less construction activity in the months ahead.

Homebuilder confidence in May was unchanged from the previous month while remaining at historically low levels.  The National Association of Homebuilders' housing market index for May stayed at a reading of 16.

National average mortgage declined from the previous week to 4.60% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on May 26th.  This is the sixth consecutive week that rates have declined.  Rates are at their lowest levels since the first week of December.  The 30-year fixed-rate mortgage has averaged below 5.0% for 14 consecutive weeks.

In the week ending May 20th, the MBA’s seasonally-adjusted purchase index increased 1.48% from the previous week and was up 3.07% compared to the same time last year.  This is the first time since May of last year that purchase mortgage applications have recorded a year-over-year gain.  Record-low mortgage rates have helped support both refinance and purchase activity in recent weeks.

FROM

http://www.housingintelligence.com/economics/banks-sell-3x-more-than-builders.html


Posted in:General
Posted by Adam Coccimiglio on June 13th, 2011 11:35 AMPost a Comment

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