Housing purchases up slightly, but…

posted at 3:25 pm on November 28, 2011 by Steve Eggleston

The Associated Press has some “good” news and some disturbing news on the housing front:

New-home sales increased 1.3 percent last month to a seasonally adjusted annual rate of 307,000, the Commerce Department said Monday. That’s less than half the 700,000 that economists say must be sold to sustain a healthy housing market.

September’s figures were also revised down significantly to show a weaker pace than first estimated.

Last year’s 323,000 new homes sold were the fewest since the government began keeping records in 1963. This year isn’t faring much better….

Many builders have stopped working on new projects because they can’t obtain financing. The number of new homes for sale in the United States fell in October to a record low of 162,000.

They are also struggling to compete against cheaper re-sales, even as they lower their own prices. The median sales price of a new home fell 0.4 percent in October from September, to $212,300.

Looking through the release itself, 2011 is actually faring worse. Through October 2010, 279,000 new homes were sold in 2010. Through October 2011, 260,000 new homes were sold in 2011. It also looks like Ed’s warning from the other week on new housing starts/permits is operative:

Permits went up 10.9%, but many projects that get permits don’t get built if builders don’t see a market for sales. Completions are still down 5.7%, which is the residual effect of declines in building in earlier months, but single-family completions are up 7.1% in October. That means builders see a reason for more confidence — but also that inventories have expanded. If sales rise in the next couple of months, this will be a good sign; if not, it will dampen construction again.

The news isn’t much better on the existing home market. Last week’s National Association of Realtors report, referenced at the end of the AP story, also paints a mostly-bleak picture. Even while existing home sales rose by 1.4% from September (on a seasonally-adjusted basis) and 13.5% from October 2010 to a seasonally-adjusted annual rate of 4.97 million, far short of the 6 million economists expect in a healthy market. Further, while the percentage of “distressed homes” sold fell to 28% from 30% in September and 34% in October 2010, the median price slipped 4.7% from October 2010 to $162,500. Worst of all, contract failures, defined by NAR as “cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses”, jumped to 33% in October from 18% in September and 8% in October 2010.

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Many builders have stopped working on new projects because they can’t obtain financing.

Way to work in that Democrat talking point.

I’m sure loads of people are lining up to borrow money from those evil banks to build houses that aren’t selling even at reduced prices.

forest on November 28, 2011 at 3:32 PM

Same old same old. It’s the price stupid. Lower the price, people will buy. Keep price at 2006 levels, nobody will buy.

angryed on November 28, 2011 at 3:32 PM

I waiting for the FHA BK. To stay in the black in 2012,FHA needs home prices ot no longer decrease. With 30% to 40% of borrowers using FHA, guess what is going to happen to home prices, if they have to come up with a larger downpayment…or just eliminate the program altogether?

Of course the same thing is happening to Fannie and Freddie.

Finally, what happens when we can no longer sell bonds at low interest rates and we are back to 8%-10% mortgages?

What is the upside here?

Oil Can on November 28, 2011 at 3:34 PM

Worst of all, contract failures, defined by NAR as “cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses”, jumped to 33% in October from 18% in September and 8% in October 2010.

Why is this “worst of all”? This is a good thing. It means banks are using proper underwriting standards, ie if a house is worth $200K, you don’t lend $250K on it. This is a good thing.

angryed on November 28, 2011 at 3:36 PM

Worst of all, contract failures, defined by NAR as “cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses”, jumped to 33% in October from 18% in September and 8% in October 2010.

So one in three sales contracts was canceled by the lender in October?

How does that show up in the sales figure? I’m guessing a sale is only counted as a closed transaction. Was there a big jump in accepted offers with a whole big swath of them being declined, or will that 33% rejection rate show up as a huge drop in closings next month?

TexasDan on November 28, 2011 at 3:36 PM

Oil Can on November 28, 2011 at 3:34 PM

The upside is a real estate market free from govt intervention. And lower prices for homes. A win-win.

angryed on November 28, 2011 at 3:37 PM

angryed on November 28, 2011 at 3:37 PM

Amen….I HATE federal manuipulation in the housing the market.

I meant the upside for purchasing a home right now. I want to move, without selling my existing place. I rather owe less money at 9%, then a lot more money at 4.5% I still see prices dropping, I’m waiting it out.

Oil Can on November 28, 2011 at 3:41 PM

Why is this “worst of all”? This is a good thing. It means banks are using proper underwriting standards, ie if a house is worth $200K, you don’t lend $250K on it. This is a good thing.

angryed on November 28, 2011 at 3:36 PM

You’re assuming that people are still trying to get $250K mortgages on $200K properties. If that’s the case, you’re right; the contract failures are a good thing.

However, it appears that those in the market can’t afford even the reduced prices homes are going for nowadays. That’s not a good thing.

Steve Eggleston on November 28, 2011 at 3:43 PM

How does that show up in the sales figure? I’m guessing a sale is only counted as a closed transaction. Was there a big jump in accepted offers with a whole big swath of them being declined, or will that 33% rejection rate show up as a huge drop in closings next month?

TexasDan on November 28, 2011 at 3:36 PM

You got me; I’m not a realtor.

Steve Eggleston on November 28, 2011 at 3:45 PM

I’m sure loads of people are lining up to borrow money from those evil banks to build houses that aren’t selling even at reduced prices.

forest on November 28, 2011 at 3:32 PM

You’ll probably see the starts collapse the next couple months on a seasonal basis.

Steve Eggleston on November 28, 2011 at 3:46 PM

How does that show up in the sales figure? I’m guessing a sale is only counted as a closed transaction. Was there a big jump in accepted offers with a whole big swath of them being declined, or will that 33% rejection rate show up as a huge drop in closings next month?

TexasDan on November 28, 2011 at 3:36 PM

I called NAR and they only count closed sales during that month. They have a pending contracts figure, but they also factor in the contracts that where canceled.

The reason I know this that there is a big difference in the NAR and California Association of Realtors (CAR) pending sales figures. CAR doesn’t substract out the pending contracts that were canceled.

Oil Can on November 28, 2011 at 3:52 PM

However, it appears that those in the market can’t afford even the reduced prices homes are going for nowadays. That’s not a good thing.

Steve Eggleston on November 28, 2011 at 3:43 PM

That’s not it Real estate is selling when the home is priced right. My example is happening all the time though. Houses worth $200K with asking prices of $250K or $300K. There is always a moron out there willing to pay $250K. Lenders on the other hand say NO WAY. Eventually that house will sell for $200K or $190K and a lender will write a note on it. Again, this is a good thing.

People are waiting out for the best deal. Just because something is reduced doesn’t make it a good buy. I could put up a Honda Civic for sale at $100K. Then reduce it to $50K. WOW!!! 50% off, it must be a good deal. No, it’s 50% off but it’s still way over priced.

And real estate is the same way. Yea, some areas are 20, 30, even 50% below peak pricing. Doesn’t mean they’re good buys if you think it could go another 10, 20, 30% lower.

angryed on November 28, 2011 at 3:53 PM

I still haven’t see the TAXES on homes start dropping though. In fact, I have see where the city was seeing a projected decline in the tax income, and raised the mill rate to offset the projected expected drop in home values.

Where’s the incentive to buy, when its going to cost MORE taxes, for LOWER valued home???

And this doesn’t even begin to delve into things like FEMA going around the country re-zoning homes into “flood plains”, as a way to increase their “customer base” after the horrific losses from Katrina.

The governmemt is ruining our country, not making it better.

KMC1 on November 28, 2011 at 3:58 PM

That’s not it Real estate is selling when the home is priced right. My example is happening all the time though. Houses worth $200K with asking prices of $250K or $300K. There is always a moron out there willing to pay $250K. Lenders on the other hand say NO WAY. Eventually that house will sell for $200K or $190K and a lender will write a note on it. Again, this is a good thing.

HOW is that a “good thing”?!?!?
Obviously, you’re one of those vindictive people who thinks everyone selling their homes, are those “flippers”, and that they deserve it.

You’ve totally ignored that there are MILLIONS of people out of work right now (thank you Obozo, peace.be unto Him) who can’t afford their mortgage and need to sell. HOW is it going to be a “good thing” for them to loose a hundred grand?!?!?!

What about those people who have had to transfer their employment?!?!?

You’rb obviously NOT an authority on what constitutes a “good thing”.

You know what WOULD be a good thing??? How about taking those BILLIONS of dollars Barack H. Obozo (peace be unto Him) pissed out the window for Solyndra, and helping out those people who really need the help?!?!

KMC1 on November 28, 2011 at 4:05 PM

Home values are still falling, except for a few small areas around the country. Anyone would be stupid to buy now.

bloviator on November 28, 2011 at 4:11 PM

Although 2 houses on my block sold within the last year, one was to a real estate agent, looking to flip. It wasn’t a sale to an end user. Meanwhile two more houses are for sale, with nary a nibble.

rbj on November 28, 2011 at 4:29 PM

I called NAR and they only count closed sales during that month. They have a pending contracts figure, but they also factor in the contracts that where canceled.

The reason I know this that there is a big difference in the NAR and California Association of Realtors (CAR) pending sales figures. CAR doesn’t substract out the pending contracts that were canceled.

Oil Can on November 28, 2011 at 3:52 PM

So the pending contracts figure would presumably reflect the 33% cancellation rate?

I’m not in RA, but that seems like a gigantic number to me. It would be hard to imagine that the number of prospective buyers increased that month in proportions that would keep the following month’s closing figures from reflecting a huge drop.

TexasDan on November 28, 2011 at 4:40 PM

Here, where I live, homes are not selling at all. Even when the prices are dropping, my real estate taxes are not declining because the county is not dropping the value on my home. I wish I could sell my home for what the county has it valued at.

Mirimichi on November 28, 2011 at 4:47 PM

KMC1 on November 28, 2011 at 4:05 PM

You need to breathe slowly.

When gas doubled in price, were you happy? Was it good for the economy?

When the price of food goes up 10% are you happy? Is it good for the economy?

When insurance goes up 10%, are you happy? Is it good for the economy?

None of these price inflation examples are good. But when the price of housing doubles like it did in the bubble, we’re supposed to cheer? Think about that for a while. Then think about whether it’s good to have cheap housing or expensive housing long term. Then you might figure out why this is a good thing.

angryed on November 28, 2011 at 5:25 PM

Worst of all, contract failures, defined by NAR as “cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses”, jumped to 33% in October from 18% in September and 8% in October 2010.

We were looking for houses to buy and had to let a couple of offers fall through after finding mold and other serious issues that we did not want to tackle. The two we purchased were each sold for 1/3rd of their values in 2007. One third. Scary stuff.

Fallon on November 28, 2011 at 5:28 PM

Although 2 houses on my block sold within the last year, one was to a real estate agent, looking to flip. It wasn’t a sale to an end user. Meanwhile two more houses are for sale, with nary a nibble.

rbj on November 28, 2011 at 4:29 PM

-
A beautiful modernized Victorian across the street has been on the market non-stop for 3-4 years now. She has reduced by at least 30%… and it’s been a while since I’ve seen anyone slow down to take a look.
-
I had a realtor give me a guess last year as to selling price and time on the market if I sell. I’ve been here 17 years and he gave me a rock solid max (based on lending and banking as they are now… not on buyer willingness). Bottom line… I never should a put the siding and windows on 5 years ago. Of course I also should’a sold 5 years ago… but there you go.
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RalphyBoy on November 28, 2011 at 5:38 PM

angryed on November 28, 2011 at 5:25 PM

No.
You need to get a clue.

Thinking it’s a “good thing” to have homeowner’s losing their shirts is plain backwards.
It has NOTHING to do with me being “happy” about gas prices. It has NOTHING to do with the cost of ANYTHING going up.

The cost of insurance going up 10% has absolutely NOTHING to do with a homeowner losing 100% of the equity in their home, as well as incurring a massive debt load of $100k or more.

What you keep thinking is a “good thing” is in fact, the end of retirement for many people, the beginning of a 10 year or more struggle to rebuild their credit, their assets and their stability. It is NOT a good thing.

You have NO IDEA what you’re talking about when you think it’s a “good thing” for this to happen to people. You are obvioulsy only thinking of yourself and what possibilities are ahead for those fortunate enough to weather the next 10 years or more without being negatively affected.

I hope you do have a good job that will “never” go away, or live in a home you will “never” have to move from, and can easily afford. But you seriously need to learn the difference between a recession and a depression, as in; a recession is when your neighbor losses his job, a DEPRESSION is when you lose yours.

KMC1 on November 28, 2011 at 5:58 PM