Headlines – Week of July 15, 2012
July 28, 2012
Goldman Sachs Sees ‘Strong’ Recovery for Housing
In a recent report from Goldman Sachs Group Inc. (GS), U.S. homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales.
The report notes a “long list of positives,” for the housing market including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes.
Public homebuilders reported increasing orders this year as mortgage rates fell to record lows and the supply of existing homes for sale shrank. Construction of single-family houses rose 4.7 percent in June to a 539,000 annual rate, the fastest in two years, the Commerce Department said last week.
Analysts at the Goldman Sachs believe a strong recovery in new-home sales is ahead and a number of risks to the housing market have abated, giving them confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market.
The U.S. economy has created enough jobs since the end of the recession in 2009 to fuel new-home sales at an annual rate of 550,000 to 600,000, the analysts said. New houses sold at a pace of 369,000 in May, the highest rate since 2010, the Commerce Department reported last month.
The Goldman Sachs analysts estimated new-home sales would reach 700,000 in 2014.
Government policies have improved in the past year by addressing supply instead of demand. The report notes such recent programs as the bulk sale of foreclosed single-family homes to investors and the expanded Home Affordable Refinance Program, which allows refinancing of properties worth less than their mortgages.
The supply of homes for sale has fallen to six months from 10 months in the past two years and the shadow inventory, or the homes projected to hit the market through foreclosures and short sales, is down 15 percent in Arizona, California, Florida, Nevada and Texas, while growth in building permits indicates a 34 percent increase in demand in those states.
Foreign home searches drop as prices rise
A recent report by Trulia looked at the buyers who accessed its website to check home listings. The company says that in recovering markets, the number of foreign buyers conducting a search appears to drop off as real estate prices rebound.
However, foreign buyers are still interested in U.S. real estate generally and Florida real estate specifically. Trulia listed the top 10 cities searched by foreign buyers through its website, and six are in Florida:
- Los Angeles
- Fort Lauderdale
- Lakeland-Winter Haven
- West Palm Beach
- Cape Coral-Fort Myers
- San Francisco
- Las Vegas
Trulia says that 15.7 percent of the Miami searches done through its website were by foreign buyers. Falling home prices across the U.S. real estate market have attracted foreign home searchers, most notably from Canada, the United Kingdom, Germany and Australia. However, U.S. asking prices rose nationally 0.3 percent year over year in June.
US Existing Home Sales Fall In June: 4 Important Trends
According to the National Association of Realtors, U.S. existing home sales unexpectedly fell in June, raising new doubts about the housing recovery. Resales make up the significant majority of the housing market, compared to new homes, and represent the largest single purchase for most Americans, making the sector a major factor for consumer spending and growth in gross domestic product.
June had an annual rate of 4.37 million units sold, meaning 4.37 million homes were sold in the previous 12-month period which is significantly below a Reuters forecast of 4.63 million units.
Lower home sales are directly tied to less inventory. A total of 2.39 million existing homes were on the market at the end of June, a 3.2 percent decline compared to May. At the current sales pace, there is a 6.6 month supply of homes on the market, up from 6.4 months in May and far below the 9.1-month supply in June 2011.
A six-month supply is considered relatively healthy and low supply is thought to mean a market with high demand. However, in this market, many believe a low supply in housing may actually represent a depressed market that is not attractive for potential sellers to list their property. This, in turn, gives buyers fewer options and creates negative conditions for both buyers and sellers.
The most positive change in the June report was an increase in prices, with the median price increasing on an annual basis of 7.9 percent to $189,400. It was the strongest gain since February 2006. Higher prices are generally a good thing for the housing market, because it encourages more people to consider buying, with the expectation that they are making a positive investment.
However, this also comes with a caveat, since home prices are not necessarily increasing in many markets. This is due to the fact that the market’s share of distressed sales (either foreclosures or short sales by banks) has decreased to 25 percent of the market, down from 30 percent in the prior year.
Since distressed sales are, on average, around 16 percent cheaper than market-rate transactions, the overall price increase is partially tied to a change in the types of properties that are being sold. Fewer distressed sales are another positive change for the housing market, but there are still foreclosures that have yet to be processed, thanks to the delays caused by “robosigning.”
The existing home sales report further breaks down pricing by region, which reveals major differences around the country. The Northeast had an 11.5 percent monthly drop in sales to a pace of 540,000, and its median price fell by 1.8 percent, although it remained the most expensive region at $253,700 median price.
The Midwest had 1.9 percent fewer sales compared to the prior month, but pricing rose 8.4 percent on an annual basis to $157,600 and the South saw a sales decline of 4.4 percent, but pricing rose 6.6 percent to $165,000. In the West, the number of sales fell 6.9 percent, but median price surged 13.3 percent to $233,300, compared to the prior year.
These numbers clearly show a mixed market. But brokers and developers have said consistently that prime cities like New York, Washington, D.C., San Francisco and Boston have demonstrated strong demand and rising prices. Meanwhile, the bulk of the country’s single-family properties in the middle of the country have languished, particularly in areas of weak employment. This bifurcation between high-demand cities and weaker regions is expected to continue; any housing recovery will likely be uneven at best.
Six in Ten U.S. Cities see Foreclosure Spike
RealtyTrac released its Midyear 2012 Metropolitan Foreclosure Market Report and it shows that foreclosure activity in the first half of 2012 increased from the previous six months in 125 of the nation’s 212 metropolitan areas with a population of 200,000 or more.
However, in a year-to-year comparison, foreclosure activity declined in 129 of the metro areas.
California cities made up seven of the 10 highest metro foreclosure rates and 10 of the top 20 metro foreclosure rates during the first half of the year, while Florida accounted for four of the top 20 metro foreclosure rates. Illinois accounted for two of the top 20; and Georgia, Arizona, Nevada and Colorado each had one city in the top 20.
Stockton, Calif., posted the nation’s highest metro foreclosure rate at 2.66 percent of housing units (one in every 38) in the first half of 2012, followed by four other California cities: Modesto (2.61 percent), Riverside-San Bernardino-Ontario (2.59 percent), Vallejo-Fairfield (2.56 percent) and Merced (2.15 percent).
Florida cities in the top 20 include Orlando (No.12), Miami (No. 13), Cape Coral (No. 17) and Lakeland (No. 18).
In gauging change between the last half of 2011 and the first half of 2012, the Tampa-St. Petersburg-Clearwater area had the highest foreclosure increase at 47 percent.
Posted by Scott R. Lodde