Here Come the Happy Housing Numbers, but Foreclosures Up Year-Over-Year
Spring has sprung, the yearâ€™s longest day is right around the corner and the happy housing market summertime stats are popping like popcorn.Â With this yearâ€™s first quarter home sales numbers having come in somewhere between abysmal and dreadful, Aprilâ€™s numbers were destined to come in rebound-like.
You might even say that since March came out like a lamb, April had to come in like a liar. Â (LOL, right? Â No? Â Oh well.)
According to the Joint Release from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development on May 23, 2014, sales of new single-family houses in April 2014 were 6.4 percent above the revised March rate of 407,000, but 4.2 percent below the April 2013 estimate of 452,000.
Want to know what that means in terms you can understand?Â Well, David Stockman straightens it out as follows:
â€śActual monthly sales in April came in at 41,000 compared to 39,000 in March. Thatâ€™s a gain of 2K that requires a Wall StreetÂ microscope to ascertain, but then it was also a 2K drop from the 43K new homes sold last year.â€ť
So, when you see the flurry of happy housing market summertime stats that are sure to be coming soon to a theater near you, keep in mind that itâ€™s a case of â€ścompared to what,â€ť to borrow words from the great “Les” McCann. Â It canâ€™t be hard to recognize that April sales coming in at 41,000 compared with March at 39,000â€¦ well, itâ€™s hardly reason to hold a parade.
Stockman, a former Republican U.S. Representative from the state of Michigan, who also served as the Director of the Office of Management and Budget (â€śOMBâ€ť) from 1981 to 1985, also explains that, â€śthe nation is now saddled with massive excess supply and has nearly 20 million vacant units, statingâ€¦
â€śâ€¦ the more relevant point here (is) that new homes sales are still bumping along a mighty historic bottom; that the beginning of interest rate normalization has already put the kibosh on the tepid recovery that had been underwayâ€¦â€ť
And further, Stockman echoes what Iâ€™ve pointed out many times in the recent pastâ€¦
â€śCompounding the slump is the fact that new household formation rates have dropped into the sub-basement of historical experienceâ€”coming in at about 500K annually in recent years compared to 1.5-2.0 million in pre-crisis times. The reason the data is in the sub-basement, of course, is that the kids are still inÂ mom and dadâ€™sÂ basement, surviving on student loans and hamburger flipping gigs a few hours per week.â€ť
Itâ€™s gratifying to see that Stockman is one of the few that â€śgets it,â€ť and the fact that heâ€™s a Republican makes it all the more remarkableâ€¦ and admirable, for that matter.Â I mean, I have to say itâ€¦ I know Iâ€™ve never been a congressional representative or the director of the OMB, but regardless, he reminds me ofâ€¦ wellâ€¦ me.
Just consider what he has to say in his recent piece about, â€ś20 Million Homeowners Canâ€™t Trade-Up Because Theyâ€™re Still Underwater.â€ť
â€śHere we are 96 months after the housing peak, yetÂ there are still 20 million households which are either underwater on their mortgages or do not have enough embedded equity to cover the transaction costs and down payment needed to move. Since thereÂ are only 50 million households with mortgages, that means that as a practical matterÂ 40% of mortgage borrowersÂ are precluded from trading-up.â€ť
And Davidâ€™s number of 40% being underwater, unable to move, and therefore not a part of the demand for residential real estate, may be low when you consider the 20 percent down payment needed to qualify for a mortgage from Fannie or Freddie,Â those that canâ€™t qualify because of their credit scores, or you include the baby boomers who are aging and simply donâ€™t want to move for that reason alone.
WHY IS ALL OF THIS SO IMPORTANT?
Just to make sure everyone understands why this is so important, itâ€™s because in any normal sort of real estate market, roughly 60 percent of homebuyers are selling a home to buy anotherâ€¦ buy-up buyers, letâ€™s call them.Â Another 30 percent of buyers, normally, are first time buyersâ€¦ normally 10 percent of sales are investors.
So, do the mathâ€¦ if 40+ percent of homeowners today canâ€™t move because theyâ€™re underwater, effectively underwater, or canâ€™t sell at a price that will net them enough to cover their next down payment, or because they donâ€™t have the credit score theyâ€™d need to qualify today, or because theyâ€™re at the age when they donâ€™t want to moveâ€¦ that means that 40+ percent of the 60 percent of homebuyers are gone from the demand for homes today.
And, as Stockman also points out, with the census reporting that 39 percent of 18-30 year olds still living at home with their parents, and household formation running at 25 percent of historical norms, it should be easy to see why first time buyer demand isnâ€™t rising to its normal 30 percent of sales level.
And if demand can’t go up, then prices can’t go up either. Â Now, if there’s only one house for sale in a neighborhood, it probably will sell for a little more than it should, but that’s not price appreciation based on sustainable demand.
With demand being so greatly diminished for reasons that are not changing anytime soon, 50 percent of the sales over the last two years have been investors, not people looking to live in the homes being purchased.Â Just like the latest data on new constructionâ€¦ the vast majority are multi-unit housing, not single family residences.
In other words, the housing market hasnâ€™t recovered, and wonâ€™t recover because it canâ€™t recover until the underlying fundamentals change, and that wonâ€™t happen for a long, long time.Â It certainly wonâ€™t happen as long as we refuse to do anything to actually mitigate the damage caused by the ongoing foreclosure crisis.
California Foreclosures Are Up 27% Year over Yearâ€¦
Have you been tempted to believe the headlines from the first quarter of this year about the foreclosure crisis coming to an end?Â Well, donâ€™t.Â California foreclosures in April are up 27% compared with the same month last year.Â And hereâ€™s some of the latest data on the subject.
On May 13th, RealtyTrac reported that bank repossessions were up month over month in 26 states, and in 16 states are up over last year by significant amounts.Â Hereâ€™s a look at how bank repossessions are trending year-over-year in the top ten statesâ€¦
- New York, a 142 percent increase
- Oregon, a 91 percent increase
- New Jersey, a 58 percent increase
- Illinois, a 55 percent increase
- Indiana, a 52 percent increase
- Maryland, a 45 percent increase
- Connecticut, a 44 percent increase
- California, a 27 percent increase
- Nevada, a 15 percent increase
Mark Fleming, chief economist for CoreLogic, in a recent release had the following to sayâ€¦
â€śâ€¦ the housing market is a long way from being fully recovered.â€ť
Â And how could it be any other way? Â
Answer: It couldn’t.
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