The weather is better, but the news isn’t. The National Association of Realtors released their Pending Home Sales Report this morning:
The Pending Home Sales Index, based on contracts signed in March, registered 104.3, down 10.5% from March 2006 when it was 116.5, and is 4.9% below an upwardly revised February index of 109.7. The index is the lowest since a reading of 103.5 in March 2003, coincidentally, the middle of the housing boom.
The NAR’s press release continues:
David Lereah, NARs chief economist, expected the decline. Although the weather improved in March , we’re starting to see the effects of a decline in subprime lending and tighter lending standards, he said. Home sales will be relatively sluggish in the second quarter, but a modest uptrend should resume during the second half of this year.
Due to the seasonal nature of real estate, sales typically decline in the last half of the year. Given the increasing levels of inventory and sluggish sales, there is no factor that would signal this second half uptrend, however modest. Everything points to home sales being a bust in 2007.
[Edit by request: I am attaching the chart of the actual reading, as opposed to the YOY change.]
Mish's Global Economic Analysis
Ohio Fraudclosure
Northern Virginia Housing Bubble Fallout
UK House Bubble
Bubble Meter
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
Twist, would it be possible for you to present a graph of pending home sales in actual numbers (not YOY change), going back to Jan 06 and forward to present?
Once YOY goes negative and stays there for more than a year, the total slump can look shallower than the real slump (from peak to present).
>>>a modest uptrend should resume during the >>>second half of this year. [NAR]
>sales typically decline in the last half of >the year [Twist]
Of course it helps the NAR that they can make broadly optimistic statements like that, and then later use any historical point of reference they’d like to “prove” their prediction right.
Month-over-month not showing an uptrend? They’ll use Year-over year!!
It shouldn’t be too long before Lereah’s successor steps in and declares that “Decade-ver-decade” is the *new*, *best* way to go.
Yeah, that’s one thing Lereah’s successor will have going for him – since he’s new, if the usual statistics don’t look good, he will be able to completely change the way he “proves” real estate is going great without looking as foolish as Lereah has when he’s done so. Sadly, he may be able to get away with that with the MSM once or twice.
But *we’ll* all be wise to that game…
NVMike-
You caught me feeling lazy. I was thinking it was time to change to a chart of the readings, but after three posts yesterday, and two today, I thought I’d just plug the numbers into the old chart.
I have however, updated the post for you. : ) The actual readings, as you indicated, are the more illustrative graph at this point.
Hi twist,
The y-axis on the new graph is the Pending Home Sales Index. Is that particular index an actual count of pending sales?
NVMike-
I wish it did- I would think that would be a useful way of doing it. Lereah explains the numbers as follows:
So we’re above 2001 levels of activity, but not by much.
Sort of off topic, but on topic at the same time:
I posted an email that I sent to my realtor a few days ago he replied today. I really want to respond… but I’m not entirely sure what to say.
Would any of you like to help me respond?
Dustdevil-
What did he have to say?
Here it is:
DustDevil,
I understand your point and can respect your opinion. However, if I were you I would be cautious of using only general market statistics and economic data to make your personal financial and real estate decisions. I would truly hope that if you decided to buy a home (now or in the future) you would not pay what would be considered the full value of the home. I can fully agree with you based on personal experience representing both buyers and sellers that home prices are still inflated. Some neighborhoods and markets are very inflated and some have already come to their senses and you can see a step off in the prices back to what I would consider their true value. However, if you only look at the averages in the market it may never look too appealing.
As an investor, my specialty is to find undervalued homes. One of my recent purchases (Nov 06) was a 3.79 acre horse property in the NW with a 2,160 sq ft home that I purchased for $215,000. I would consider my purchase price to be far below 1998 prices with a 3-5% appreciation per year. If it were 1-2 years ago it would have been much more difficult to get such a great deal. On this property I spent just over $100k in improvements and now have it listed at $579,900 and it is surrounded by $600-$1M properties. This is just one example, I have 3 others that I have participated in personally
just since the beginning of the year. The market today a “Buyers Market” which creates amazing opportunities for those individuals willing to look.
That said my point is that in ANY market value can be found and deals can be made but it is on a smaller level than what can be read about in any news release. I never look to buy the average or the median home described in statistical reports. That would be foolish as you would only expect average gains.
Taking the purchase price of a home off the table for a moment and assuming you purchase a home at a good price you must also look at all the other values buying a home offers. Tax benefits, quality of life, living in a space that suits your needs, credit benefits, leverage, and the list goes on and on. In addition, remember the 2 year primary residence tax exempt rule. This tax law creates an amazing source of income. If you bought an undervalued home today and the home had little to no appreciation and sell it in two years at market value. The worst case scenario is that you don’t pay any taxes on the amount you saved buying it undervalued, you greatly reduce your yearly income tax burden with the additional interest and
improvement write offs, plus all the other benefits listed above. This
savings or additional tax free income could be $5,000 or $50,000 on a $200,000 home alone. In any case it will be placing you in a position benefit sooner than later.
Another avenue worth looking at is the way I entered the market and I am now helping a friend enter the market. My first purchase was a very nice duplex for 220,000 on a 1/2 acre with a pool, my second was a triplex. I lived in the duplex and the one side paid half my mortgage I had a roommate on my side which left me with only a couple hundred dollars of expense per month but I owned a $220,000 property which I sold for $300,000 and wrote off
nearly $24,000 in interest per year greatly reducing my income tax burden. Even if I had sold the property at break even after two years it would have still saved me a ton in taxes, I would not have had such a great place to live, and I would have thrown away nearly $12,000 in rent to pay someone else’s mortgage.
Beyond the statistics I recommend that you look how you can benefit by purchasing a home then focus on maximizing that benefit. If now is not the time for whatever reason I would recommend watching a couple properties closely as if you had purchased them today then check back on those properties in the future and calculate with everything taken into consideration what your financial picture would have looked like had you purchased the home sooner than later. I would be willing to bet you would not have been disappointed about buying.
Let me know which direction you decide.
Dustdevil-
He is right about market averages. They can give you a sense of general market trends, but certainly not the performance of any particular neighborhood or home. That’s why I may look at market averages for general purposes, but for myself I have a tighter focus.
I can now buy the model that I was looking at last year for about 10% less than I could last year, so personally, I’m not sorry I waited. [and continue to wait]
I’ve saved a fortune on my monthly payments, and I don’t pay anything for home repairs. I have also ceased to be one of Home Depot’s better customers, since I don’t bother remodeling. While I’ve lost a bit on the taxes, the net savings for me have been huge.
There’s close to 53,000 homes for sale now- and they aren’t going anywhere fast. If something akin to the gold rush of ’49 happens, maybe I’ll be sorry I didn’t wait, but for now I figure, what’s the hurry?
Based on the tone of his letter, I doubt you’ll convince the guy that waiting is a good move, though, or if you do convince him, that he’ll admit it.
I note he hasn’t sold that great flip he bought in November yet. Maybe he’ll make money, maybe he won’t. No question there are people that are out there making money now, but they are the exception now, not the rule.
Ultimately though, if you are in the mood to wait, you’ll probably just have to just tell him “No thank you, I’m not interested at this time.” That line is tough to argue with.
Here was my reply:
> I understand your point and can respect your opinion. However, if I were
> you I would be cautious of using only general market statistics and
> economic
> data to make your personal financial and real estate decisions. I would
> truly hope that if you decided to buy a home (now or in the future) you
> would not pay what would be considered the full value of the home. I can
> fully agree with you based on personal experience representing both buyers
> and sellers that home prices are still inflated. Some neighborhoods and
> markets are very inflated and some have already come to their senses and
> you
> can see a step off in the prices back to what I would consider their true
> value. However, if you only look at the averages in the market it may
> never
> look too appealing.
Exactly. Home prices are still very inflated and that is my whole point.
The market is going to get to a point where many, many sellers are forced
to sell or attempt to rent it out. The majority of the ARM’s and interest
only loans sold at the peak of the housing bubble will reset in the next
three years. The mortgages sold to the class of 2005 and 2006 will be the
worst as the prices these folks paid were absolutely insane.
Investors that bought a second, third or forth home may or may not have
the cash to ride out the downturn. I would be willing to bet a majority
of these “investors” bought with the intent of a quick flip for a tidy
profit without significant cash reserves and plan “b” (turn it into a
rental) to ride out a downturn. In any case, many are simply going to be
forced to make a move: rent or sell and I’m betting on a short sale when
things get real ugly.
The rental market is completely saturated at the moment. I could walk out
of my apartment today and have at least 10 people willing to take me on as
a tenant for well under the mortgage payment they are paying. That
scenario is only going to get worse… for them. As a renter its a great
bargaining tool.
Furthermore, its a problem that self perpetuates. More investors that
can’t sell leads more to believe that they can just, “rent it out”. Many
are finding that they did not put in the due diligence of studying the
rental market. Rent and mortgage payments are so out of wack here in
Tucson that if you bought a home between 2003 and 2006 your mortgage is
simply too much to be covered by renting alone. Unless you bought a home
for under 150K…
In fact, a good gage of a healthy housing market is simply looking at the
rent vs. mortgage payment. Look at how cheap it is to rent a house right
now on craigs list. I can get into a 4 bed house with two buddies and pay
about $300 per month with no maintenance costs… someone is bleeding
money.
Heck, look at the sheer number of postings. When I was looking for a
place to rent in 2002, it was a nightmare with something like 3 or 4
postings a day. Now its up to about 60 or 70 postings a day and the
number keeps getting bigger and cheaper.
> As an investor, my specialty is to find undervalued homes. One of my
> recent> purchases (Nov 06) was a 3.79 acre horse property in the NW with a 2,160
> sq ft home that I purchased for $215,000. I would consider my purchase price
> to be far below 1998 prices with a 3-5% appreciation per year. If it were
> 1-2 years ago it would have been much more difficult to get such a great
> deal. On this property I spent just over $100k in improvements and now
> have it listed at $579,900 and it is surrounded by $600-$1M properties. This
> is just one example, I have 3 others that I have participated in personally
> just since the beginning of the year. The market today a “Buyers Market”
> which creates amazing opportunities for those individuals willing to look.
> That said my point is that in ANY market value can be found and deals can
> be made but it is on a smaller level than what can be read about in any news
> release. I never look to buy the average or the median home described in
> statistical reports. That would be foolish as you would only expect
> average gains.
I’m not an investor and I hate moving. I’m looking for a home that I want
to live in for the next 10 years… at least. I have a small business that
I just started and I don’t plan on making money with real estate in the
short term. My only concern is long term gain and short term loss. I don’t
want to start off upside down and I would rather pay a high interest rate
for a few years than pay for an over priced house for 30 years.
> Taking the purchase price of a home off the table for a moment and
> assuming you purchase a home at a good price you must also look at all the other
> values buying a home offers. Tax benefits, quality of life, living in a
> space that suits your needs, credit benefits, leverage, and the list goes
> on and on. In addition, remember the 2 year primary residence tax exempt
> rule. This tax law creates an amazing source of income. If you bought an
> undervalued home today and the home had little to no appreciation and sell
> it in two years at market value. The worst case scenario is that you
> don’t pay any taxes on the amount you saved buying it undervalued, you greatly
> reduce your yearly income tax burden with the additional interest and
> improvement write offs, plus all the other benefits listed above. This
> savings or additional tax free income could be $5,000 or $50,000 on a
> $200,000 home alone. In any case it will be placing you in a position
> benefit sooner than later.
I understand the benefits. However, many of those benefits are “perceived”
benefits. Let me explain;
1. Tax: Its a large write off, but its still money that wasn’t in my bank
account. Its money that was not available for me to pursue other economic
activities. The rewards and drawbacks of this is what economists call
“opportunity cost”. I may have the opportunity to invest in the stock
market on a new IPO, for example, but I will have a decreased capacity
because I have a bunch of money tied up in a house that may or may not be
performing. By performing I mean accruing appreciation.
My income tax burden is being offset by my business venture. I have a tax
strategy that keeps my income tax burden to the absolute minimum right
now. So, right now… I don’t need a house to help with my taxes.
2. Space: This is a perceived benefit for me because of operating costs.
It will cost me more in maintenance and utilities to start. So my
rationale is, I wait until the market hits at or near rock bottom and then
buy, This will offset my maintenance and utility operating cost in the
long term, especially given the nature of todays horribly constructed
homes.
3. Credit and Leverage: I’ve lived (for the last 10 years until now) on a
meager salary and living in very small places from Trier, Germany to
Biloxi, Mississippi and Back here… What kind of credit and leverage do I
need if I buy everything with cash? If I can’t afford with the cash I’ve
saved or by creating a separate savings for it… I don’t need it. Its
that simple in my world. I’m not looking to slam a HELOC anytime soon, I
simply don’t have a use for that much money. In a word: Content.
> Another avenue worth looking at is the way I entered the market and I am
> now helping a friend enter the market. My first purchase was a very nice
> duplex for 220,000 on a 1/2 acre with a pool, my second was a triplex. I lived
> in the duplex and the one side paid half my mortgage I had a roommate on my
> side which left me with only a couple hundred dollars of expense per month
> but I owned a $220,000 property which I sold for $300,000 and wrote off
> nearly $24,000 in interest per year greatly reducing my income tax burden.
> Even if I had sold the property at break even after two years it would
> have still saved me a ton in taxes, I would not have had such a great place to
> live, and I would have thrown away nearly $12,000 in rent to pay someone
> else’s mortgage.
Definitely a valid argument, and that is why I’m waiting for the prices to
come tumbling down. You can ask John if you like, and I encourage you to
do so. I’ve been predicting everything that has happened so far in the
housing market.
Just some FYI so you don’t think I’m a complete lunatic for writing the
stuff I write. I studied Business, Economics and MIS at the Eller School
of Business at the U of A for three years. I lived in Germany for two
years and in various places around the country for 2 years. I’ve always
been interested in Economics and Computers. I have a good grasp of micro
and macro economics and their effects on the the world economy as a whole.
I don’t believe everything I read. I watched a lot of my friends get hurt
when the dot com bubble burst around 2000. I saw the frenzy of
“investment” (similar to housing) in tech stocks and listened to reasons
why the tech bubble was “based on the fundamentals” and “different than
the last bubble” (both similar to housing).
The housing market was an absolutely classic bubble with all of the
classic signs. It has also burst and the things are just starting to shake
out. Tucson fits squarely into the mold here.
Tucson home prices during the run up did not support the underlying
fundamentals. Tucson salaries are WAY out of sink with inflation and home
prices. I think something has to give and while they will be “sticky”
down, the housing prices will come down… quite a bit.
Thanks for your time but for now I’m out,
Also Foreclosures up 51% in Pima County:
http://www.tucsoncitizen.com/daily/frontpage/50087.php
Dustdevil-
I thought your reasoning was sound, but it will be interesting to see what the agent says.
Keep us informed.