Yesterday the National Association of Realtors released its pending home sales index for February, and the report indicates that the national real estate market was doing surprisingly well a couple months ago. The index rose 8.2 percent nationwide in February as compared to January, and it was up 17.3 percent year-over-year. Here in the Northeast the index was up 9 percent over January and 18.9 percent over February 2009. According to the Times, analysts had predicted the index would stay flat in February. Lawrence Yun, chief economist for NAR, said the index’s jump may signal the early stages of a second surge of home sales,” with the first-time buyer tax credit bolstering the market as it did last fall. Although it’s a bit of good news, home prices nationally are generally static, and foreclosures continue to rise. Sharp Rise in Home Sales in February [NY Times] Pending Home Sales Index [NAR]
Index image from NAR.
Yale econ professor Robert Shiller had an op-ed in the Times this weekend that talked about why there’s not necessarily an end in sight for the decline in the country’s housing market. The piece examines why other declines have dragged out for years: “Despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline…Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving the market. Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.” He concludes: “Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.” Why Home Prices May Keep Falling [NY Times]
The Journal reports that the most recent S&P/Case-Shiller indexes, which covered home-price trends in 20 major metropolitan areas through April, show home prices dropping 15.3 percent in the past yearâ€”a record decline. The continued devaluation of residential real estate across the country set home prices back to where they were a whole three years ago, even though eight of metropolitan areas included in the index showed a bit of improvement over March of this year. There was no region studied, however, that did not post a year-over-year decline in prices. Vegas and Miami saw the biggest price drops between April ’07 and April ’08, while Charlotte and Dallas fared the best. The New York region was somewhere in the middle, with a year-over-year decline of 8.4 percent and a 1.3 percent dip between March ’08 and April ’08. “There might be some regional pockets of improvement,” said David M. Blitzer, chairman of Standard & Poor’s index committee, though “on an annual basis the overall numbers continue to decline.” Home-Price Gains Are Erased, Now Stand at 2004-2005 Levels [WSJ] Graphic from the Wall Street Journal.
Well, leave it to Bob Toll to cast storm clouds over a Bloomberg news article that contains a slightly positive piece of newsâ€”the index of pending home sales rose 6.3 percent in Aprilâ€”about the national housing market. “What people are most scared of is looking like a schmuck,” said Toll, who believes the housing slump will last another two to three years, at a conference in New York last week. “What do I want to buy a home for and next year be looking at 10 percent less asset?” Economists, meanwhile, incorrectly predicted that the index of pending home sales would actually fall slightly in April. Either way, no one’s taking the news as a sure sign that housing is on the rebound, or that there’s going to be a substantial dent in the 5 million or so unsold homes on the market, or that the foreclosure rate is going to take a nosedive anytime soon. U.S. Economy: Pending Sales of Existing Homes Unexpectedly Rise [Bloomberg] Photo by david.
By now you’ve probably read the Times article about negotiating for a home by sending a letter explaining a lowball offer; it’s been one of the top e-mailed stories on the paper’s web site for a couple days. In it, Rob Lieber drafts sample letters from both the buyer’s and seller’s sides. Apparently, epistolary haggling is all the rage nowadays in places where the market’s tanked. Here’s part of the pretend buyer’s letter:
I’m writing to let you know that I would like to make a bid on your property. I love the area and am committed to buying a house nearby. And your home fits my needs. But given that my offer is well below your asking price, I also feel I owe you an explanation. First, consider the big picture. Nationwide, home prices in the first quarter of 2008 fell 14.1 percent compared with the same period a year earlier, according to the Standard & Poor’s/Case-Shiller U.S. National Home Price Index. That’s the biggest decline in the 20-year history of the data. And just in case you’re wondering, during the housing downturn of the early 1990s, the decline was never worse than 2.8 percent. Not only that, earlier this month, the National Association of Realtors pointed to the huge number of existing homes on the market. As of the end of April, the total number was 4.55 million. At the rate people are buying right now, that represents an 11.2-month supply. So buyers have options right now. A lot of them. I’m no different. Your home is great, but it isn’t unique…
There may be an upside to the nasty wave of foreclosures inundating markets across the United States, according to a Wall Street Journal article. Basically, the wounded real estate market may partially heal itself if the flood of forcs results in hefty price dropsâ€”a trend that already seems to be taking hold. Last month the National Association of Realtors recorded a 2.9 percent increase in sales of previously occupied homes over January, the first rise since July, and the median home sales price dropped 8.2 percent. The big question right now is whether prices will drop low enough to keep up with unsold inventory. According to some, the price drops could be good news for middle-class buyers, many of whom couldn’t afford to buy properties during the boom years. There’s also the possibility that investors will start to swoop in and buy foreclosures in bulk, banking on eventual appreciation. On a side note, the chart above, included in the article, doesn’t present a pretty picture of the New York-New Jersey foreclosure scene, though a lot of these are presumably in the ‘burbs and exurbs. Wave of Foreclosures Drives Prices Lower, Lures Buyers [WSJ] Graphic From First American CoreLogic, c/o The Journal.
Roland E. Arnall, the founder of the Ameriquest Mortgage Company, died earlier this week. Arnall, whose personal fortune was pegged at $1.5 billion by Forbes last year, was a top donor to the Republican party and was named the U.S. Ambassador to the Netherlands in ’06. Ameriquest, which went out of business last August, was one of the largest subprime lenders in the country and was the target of dozens of lawsuits over its allegedly deceptive lending practices. Arnall was 68. Roland Arnall, Mortgage Innovator, Dies at 68 [NY Times]
The Times has a review of an intriguing new book called House Lust: America’s Obsession With Our Homes by Daniel McGinn (Currency, $24.95) that tackles questions many of us can presumably relate to, like, How did home renovations come to routinely turn families’ lives upside down? and Why do thousands of us now watch reality shows about home flipping or house hunting? Although the book doesn’t specifically zoom in on Brooklyn, or even New York City, real estate, it does examine larger cultural trends that hit close to home, such as how in recent years (before the subprime fallout, anyway) Americans came to see home ownership as the most valuable investment they could make, leading many to fetishize their homes. For example, McGinn looks at Fix-Up Fever in Newtown, Mass., where he finds owners engaged in renovations for the purpose of one-upping their neighbors. The author’s conclusion? Our homes may no longer be making us rich, but living through an era when we thought they might has resulted in a permanent shift in thinking â€” one that will leave many of us happily obsessed with houses for years to come. Who Needs a 401(k)? I’d Rather Have a Castle. Book cover from Amazon.
The Wall Street Journal examines how renters are finding excellent deals in areas of the U.S. that have been most affected by the subprime crisis, areas where many developers have put thousands of unsold condo units on the market as rentals. As with most aspects of the subprime mess, lower rents and condo reversions have largely bypassed the priciest segments of the New York City market, though the article name checks 99 Gold Street as an example of a condo-turned-rental. It’s also worth noting that the Real Estate Group of New York found that average rents in Manhattan, with the exception of doorman studios, declined at the end of 2007 (we couldn’t find comparable data for Brooklyn). All this data seems like good fodder for speculation, though: Think ’07 might bring falling rents and more condo reversions to Brooklyn? Home Sellers’ Pain Is Renters’ Gain [WSJ] Half Sold, 99 Gold Throws in the Towel, Goes Rental [Brownstoner]