Housing Doom

I love living in Gilbert, AZ- it’s a great community.  Let’s face it though, Gilbert– known as the former "Hay Capital" of the U.S.– hasn’t ever been able to command the prices of say, Paradise Valley.  Nevertheless, in spite of the recent cooling of the housing market, we have a number of sellers here who think their house is going to make them a millionaire- and the odds aren’t looking good.

I checked with one of our very accomodating sources, who told us about the million dollar market in Gilbert.  Since 2001, a total of 56 homes have sold in Gilbert for more than a million dollars- and the most any home has ever sold for here is $1.5 million.  As of December 27, there were 65 homes listed in the million+ range- 18 of those listed at $1.5 million or higher.  In spite of being one of the nation’s fastest growing communities, Gilbert’s excess inventory has put a damper on prices.  The median price dropped 6% from October to November alone.  It seems unlikely that the 2007 market is going to absorb more million dollar homes than it did during the boom years, or that sellers can command even higher prices.  Something has got to give here.

According to an AP report:

The National Association of Realtors recently announced that "most of the correction in home prices is behind us," and declared that wary buyers were starting to come off the sidelines and would push home sales to livelier levels in the first quarter of 2007.

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The Safety Net That Never Was - Part XXII

On Friday, BusinessWeek did a brief summary [1] of Fannie Mae’s 2006.

• Stock rose about 23%
• Filed its first earnings statement since late 2004
• Was fined $400 million in May, one of the largest civil penalties ever in an accounting fraud case
• spent $1 billion to fix its accounting
• Restated past earnings in December, wiping out $6.3 billion in profit
  • That’s a big deal (company posted "only" $2.13 billion profit in 2005)
  • But … it was less than the expected loss of $10.8 billion

That was about it for the MSM looking back at a year full of stories about the big GSE, except for a brief note [2] in TheStreet approving OFHEO’s recent decision to sue the CEO, CFO, and Comptroller from Fannie’s scandal-era management team. On the other hand, Doom readers may recall that a considerable number of additional items about the company came up in the last year, and even in the last week.

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I thought as we are winding up 2006, it would be interesting to check the forecasting ability of real estate’s favorite prognosticator, David Lereah, chief economist of the National Association of Realtors (NAR).  We do have a bit of an advantage, since we’ve got that 20/20 hindsight.  Here’s what this year’s national home sales (seasonally adjusted) looked like: [data from NAR]

Every month the NAR issues a press release with the previous month’s sales report.  In this report Lereah gives a sort of a "state of the market" address.  Here for your reading pleasure and RE enlightenment are his comments collected from the past year: [And blatant editorializing by yours truly]
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The Safety Net That Never Was - Part XXI

I don’t know how she did it with everything else exploding around Doom Castle yesterday, but Twist picked up on this [1] mildly startling OFHEO press release. Once again, an important Fannie Mae story has been slipped in during a period of slack attention, hidden under a smokescreen of competing RE news.[2] As I write this, neither blog nor MSM has picked up on OFHEO’s announcement. It’s likely that a couple of the usual suspects, perhaps DSNews or Calculated Risk, will mention this. Hopefully they’ll provide some insight. What’s the bottom line? Around four years ago, and again around three years ago, Fannie Mae was "significantly", but not "severely", undercapitalized. I take this to mean that in retrospect there should have been a yellow caution flag out from OFHEO at those two historic periods.

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It’s the last Friday of 2006, and things are winding down here at the virtual office of HousingDoom. We’re packing away the Christmas decorations and breaking out the party hats to celebrate the New Year.  If Lereah is right, the market has bottomed out, and John and I will have to spend 2007 eating crow.  On the off chance though, that it’s Lereah breaking out "101 Easy Crow Recipes" and not us- we’d appreciate your links, comments, suggestions, and words of wisdom for the new year.
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Hat tip to L  for what has to be one of the strangest ads I’ve seen in awhile.  The media has been full of stories of homeowners burying statues of St. Joseph in their yards to help home sales.  But now you can skip the muss, fuss, and embarassment of your neighbors catching you at it.  You can buy a VIRTUAL St. Joseph for only $4.99 each! (Bulk discounts for realtors and flippers):

This is just the virtual hand painted poly statue.  There is also a virtual hand carved wooden one- virtual granite and travertine versions available soon!
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It didn’t take a crystal ball to know that November sales would be down, prices would be down, and that the National Association of Realtors (NAR) would try and spin the problems away. According to Bloomberg:

“It appears we’ve hit bottom,” David Lereah, chief economist of the Realtors’ group, said at a briefing in Washington. “The price drops are necessary to stir sales. It is working.”

While sales were up a negligible 0.6% last month, the NAR has long said that the more important number is year-over-year, as the month-over-month does not allow for seasonal variability. It’s a recommendation they have managed to forget the last few months, as the month-over-month doesn’t look as bad.  Year-over-year, sales were DOWN 10.7%.  Remember that last year’s sales were already lackluster, as the market had begun to cool.

As for the median price:

The median price of an existing home fell 3.1 percent in November from a year ago to $218,000, the fourth consecutive monthly decline, Lereah said.

Here’s what the appreciation trend looks like: [data from NAR]

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It’s close to the end of the month, and I couldn’t help but take a sneak peak at how Phoenix housing will look.  As you might expect- so far the vast majority of homes that started the month with a sale sign- still have the darn thing in the yard.  Here’s the numbers :

Sales: December 2006 (first 27 days)        3,989
 
Sales: December 2005 (first 27 days)        5,394
 
Sales: November 2006 (first 27 days)        3,978
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I probably should have picked "untwist" for a handle, because I seem to spend most of my time trying to unwind the spin. Consequently, I barely knew what to do with myself then when I read this  San Antonio Express News article by Jennifer Hiller entitled "The perfect mortgage?"  After reading articles like "The Zen of Leverage" I was stunned to read in an MSM publication where they actually suggested NOT BUYING MORE HOUSE THAN YOU CAN AFFORD [and by this it is assumed they are referring to "mortgage" not "total price"]:

While some people want to buy the most expensive house they can, it’s not usually a good idea.

"Just because you can doesn’t mean you should," said Jim Gaines, research economist at the Real Estate Center at Texas A&M University. "There are a number of people who end up buying houses and get into trouble."

His advice: "Don’t buy the maximum house you can buy."

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The new home sales report is out, and the pundits are making a show of wiping their brows and breathing a sigh of relief.  AP was reporting:

Sales of new homes rose in November while the backlog of unsold homes fell for a fourth straight month, providing hope that the serious slump in housing could be ending.

Sales of new single-family homes rose by 3.4 percent last month to a seasonally adjusted annual rate of 1.047 million units, reflecting solid sales increases in every region of the country except the South, the Commerce Department reported Wednesday.

The increase was better than had been expected and offered hope that the steep slide in housing may be starting to bottom out as builders, using a wide array of incentives, begin to make a dent in the record level of unsold homes.

Before we all break out the champagne here though, there are a few things to consider.  Here is what this "increase" looks like: [data from National Assn. of Homebuilders]

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