Tuesday, April 26, 2011

Real Estate Outlook: Builder Confidence and Existing-Home Sales

The prevalence of short sales and foreclosures has prompted a new bill to be considered in Congress. According to the National Association of Realtors, this new bill could "improve the process for approving short sales" and "bring relief to distressed home owners who are unable to keep their homes and hope to avoid foreclosure."

The process in place now is said to be time-consuming and inefficient.
Ron Phipps, NAR President, says, "As the leading advocate for home ownership and housing issues, Realtors® want to help more home owners avoid foreclosure by facilitating a short sale when a family is absolutely unable to keep their home; however, that can only happen if lenders and servicers approve short sale offers in a reasonable amount of time. Streamlining short sales transactions will reduce the amount of time it takes to sell the property, improve the likelihood that the transaction will close and reduce the overall number of foreclosures. This benefits sellers, lenders, buyers and the entire community."

And communities need all the help they can get. Builder confidence for newly built, single-family homes fell in March, leaving the Index almost stagnant for the last 6 months. According to the National Association of Home Builders (NAHB), the South was to largely blame, dropping 4 points on the Housing Market Index scale.

"The spring home buying season is getting off to a slow start due to persistent concerns about home values as more foreclosures seem to be hitting the market, increasingly restrictive lending requirements for home buyers and builders, and the slow pace of economic recovery," acknowledged NAHB Chief Economist David Crowe. "While pockets of improving activity are appearing in some markets, the best sales activity appears to be happening in the lower price ranges, where first-time buyers have greater flexibility than repeat buyers who must sell their current home. Consumers who can take advantage of today’s low mortgage rates and very attractive pricing are finding bargains and are buying." 

The good news for builders? Nationwide housing starts rose by 7.2 percent in March, according to the U.S. Commerce Department. Bob Nielsen, chairman of the National Association of Home Builders (NAHB), says, "While the overall rate of new-home production remains quite low and is still being weighed down by significant uncertainties among both home builders and buyers, this latest report is encouraging. It means that some builders are cautiously beginning to re-stock their extremely thin inventories of new homes in anticipation of gradual improvement in consumer demand as the economy slowly inches toward recovery."

All regions except the Northeast experienced gains in March. The West led the way with a 37.1 percent gain. The Midwest and South gained 6.9 and 6.3 percent, respectively.

And the sale of existing-homes rose in March, as well. This continues the uneven recovery we've been experiencing.

Lawrence Yun, NAR chief economist, expects this improving sales pattern to continue. "Existing-home sales have risen in six of the past eight months, so we’re clearly on a recovery path," he said. "With rising jobs and excellent affordability conditions, we project moderate improvements into 2012, but not every month will show a gain – primarily because some buyers are finding it too difficult to obtain a mortgage. For those fortunate enough to qualify for financing, monthly mortgage payments as a percent of income have been at record lows."

And single-family home sales rose 4.0 percent to a seasonally adjusted annual rate of 4.45 million in March from 4.28 million in February, but are 6.5 percent below the 4.76 million level in March 2010. The median existing single-family home price was $160,500 in March, down 5.3 percent from a year ago. Median prices were down in all regions, ranging from 3.0 to 11.2 percent below year ago levels.
Regionally, existing-home sales rose 3.9 percent in the Northeast, but are 12.1 percent below March 2010. The Midwest saw just a 1.0 percent gain and is still 13.1 percent below year ago levels. The West dropped a marginal 0.8 percent and the South actually rose 8.2 percent.

Buyers are expected to return to the market, though. NAR President, Ron Phipps, reports, "As buyers gain more financial security, the advantages of home ownership become more obvious."

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