Saturday, April 11, 2009

Signs of Recovery II

February could be the month real estate values hit bottom in some regions. That doesn’t mean prices pick up anytime soon, however. Though HUD reported that existing-home prices with conforming loan amounts did rise 1.7 percent for the first time in more than a year. But it does mean sales are beginning to rise and even housing starts are beginning to show signs of life.

There are other signs of economic life, as well. Retail sales have picked up for 2 consecutive months, and durable goods’ orders (e.g., autos, appliances and capital goods) rose for the first time in 6 months. Not to be outdone, the Mortgage Bankers Association reported that mortgage applications continue to soar, up 41.5 percent last week, with refinances actually up 73 percent. This is while total applications have risen 18 percent in a year

Both new and existing-home sales also rose, up 4.7 and 5.1 percent, respectively in February. This is while affordability has been steadily increasing, with the National Association of Realtors Housing Opportunity Index showing that 62 percent of all homes sold in Q4 2008 were affordable to families with a median income of $61,500, up from 47 percent at the end of 2007.

Existing home sales have been stuck at or below the 5 million unit range for almost 1 year. The problem is the large inventory of foreclosed homes that have flooded the market. Relief should come from the Housing Assistance and Sustainability Plan (HASP) that was recently introduced. More than $7 billion has been set aside to inject additional monies into Fannie Mae and Freddie Mac, and to lenders who will drop their interest rates to lower mortgage payments in order to keep more families in their homes.

There is a tremendous gap between new and existing-home sales because fewer new homes are being built. This has brought down their inventory levels as well, a sign that new-home supply is returning to historic levels.

That may be why housing construction rose 22 percent in February with a 3 percent increase in building permits. It was the largest increase in housing starts in 19 years, though most of it was new apartment units and is subject to huge monthly swings.

The S&P Case-Shiller overall price index continued to decline in January, however, down another 2.8 percent in the 20 major metropolitan areas surveyed. San Francisco and Los Angeles have declined 32.4 and 25.8 percent, respectively, in the past year and will decline further.

This means that we are already seeing a price bottom in properties eligible for the Fannie Mae-Freddie Mac loan programs. The jumbo loan market is also beginning to recover with 5-year jumbo fixed ARMs declining to as low as 4.875 percent with a 5.25 Annual Percentage Rate. This will certainly bring back the high end real estate market as well.

Harlan Green © 2009

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