Thursday, January 20, 2011

December sales surge gives housing industry hope for 2011

Sometimes I find it difficult to keep up with all the up and down news about the housing market. One day it is very depressing, and the next day its super optimistic. But if you read between the lines, and not concentrate on the head lines so much, a clearer picture starts to emerge.

2009 and 2010 were abysmal years for the housing market, however, as more and more data come out, we are starting to see a trend. While median prices are still falling by a few percent overall, locally, many things are starting to change. It is evident from the my last post on the Market Conditions Report. House and Condo prices fell, yet we closed more transactions and had less days on market than the year before.

I guess my point is that regardless of what you hear nationally, there is always some differences in the local market. So please ask away! I am hear to answer your questions about our local market.

This next article does give some hope. It explains how bad 2009 and 2010 were, but certain key indicators are telling us that 2011 and beyond have a glimmer of hope. The most telling is the second graph below, which shows the sales of existing single family homes. As you can see, the increase from July of 2010 until now has steadily been increasing. That trend should continue as long as interest rates stay under 5% and the amount of foreclosures and short sales stays consistent.

By Julie Schmidt

The housing industry is poised to gain strength this year after coming off one of its worst years ever in 2010, economic forecasts and new data show.

Among the causes for optimism:

• In December buyers snapped up existing homes at a seasonally adjusted annual rate of 5.28 million units, an increase of 12.8% from November and the strongest sales pace since last May, the National Association of Realtors said Thursday.

• Building permits for new single-family homes rose 5.5% last month, third monthly increase and strongest showing since March, the Commerce Department said Wednesday.

That sets the stage for more home construction later this year as the economy improves, says Celia Chen, economist at Moody's Analytics.
"The trend is up," Chen says.
But it'll be a long slog.

• For December, the inventory of unsold homes stood at an 8.1 months' supply, the Realtors group says, down from 9.5 months in November. That represents the amount of time it would take to sell the remaining supply of homes on the market at the December sales pace. A normal supply is six months.

• The Realtors group said existing home sales last year dropped 4.8% to 4.91 million units, lowest level in 13 years.

• The previous two years have been the worst on record for home builders in at least 50 years.

• Nationwide, home prices are down almost 30% from their 2006 peak.

• A new USA TODAY survey of 44 top economists finds that 48% say average home prices will hit bottom sometime this year; 27% say it'll take longer.

The housing market recovery "will be two baby steps forward and one backward," says Joel Naroff, chief economist at Naroff Economic Advisors.

IHS Global Insight economist Patrick Newport says December's building permit numbers indicate that housing construction "may be set to grow again." But some of December's jump may have been driven by builders trying to get permits ahead of 2011 building code changes in California, New York and Pennsylvania, the Commerce Department said.

Newport also cautions that home-building numbers "are still really awful." Housing starts, for example, fell 4.3% in December as cold weather and snow delayed construction. But Newport says other factors will continue to depress housing starts.

Those include low prices on foreclosed homes, which makes it hard for builders to turn a profit on new homes, and tight financing for home builders and buyers. What's more, the recession sharply reduced the rate of household formation, which means more families are doubling up in homes vs. each getting their own, Newport says.

Moody's doesn't see home construction getting back to historically normal levels until at least 2012, Chen says. USA TODAY's economist survey indicates that 669,000 new-home starts are likely this year, up 15% from 2010.

The key is job creation, says Lawrence Yun, chief economist with the National Association of Realtors. When more people are working, and earning more, home buying increases. IHS expects the economy to add 2.5 million jobs this year and 2.7 million next year.

"The (housing) market appears to have hit bottom, and now we're trying to get back to normal," Yun says.

Even historically low mortgage rates have done little to boost the sales.

The average rate on a 30-year fixed mortgage rose to 4.74% this week from 4.71% the previous week, Freddie Mac said Thursday. The average rate on the 15-year loan, a popular refinance option, slipped to 4.05% from 4.08%.

The 30-year loan rate reached a 40-year low of 4.17% in November, and the 15-year mortgage rate fell to 3.57%, the lowest level on records dating back to 1991.

The median price for a home sold in December was $168,800, down 1% from a year ago.

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