Newsletter Archives
June, 2008
Pending Home Sales: The Good and Bad
Contributed by Lawrence Yun; NAR Chief Economist
Pending sales have fallen in some areas of the country that are considered healthy. Seattle, Nashville, and Austin markets have experienced nice rates of home price appreciation and the prices year-to-date have continued to rise or have held. But higher home prices and the associated affordability problems have begun to hold back potential home buyers in these markets - despite their solid job growth. But let's talk a minute about pending sales. While we generally assume that pending home sales "close" within 2 months of signing, "pending to closing" does not have a direct one-to-one relationship. There are several reasons for this. The sample coverage on pending sales (that is, the data sample on which NAR Research calculates the pending home sales index) is much smaller than that of actual closings as recorded in existing home sales. In addition, some contracts could "fall out," and consequently do not close (i.e., do not result in an actual sale and so do not show up in the home sales statistics). Furthermore, that traditional lag time of two months between contracts and closings may be rising.
Still, April's measure of pending home sales was a solid jump - and the first rise in the index since the beginning of the year. I am hopeful that this is the beginning of a momentum that can build and thus unleash chain reactions from some sellers now able to start buying trade-up homes. Remember: housing markets had been partly frozen because would-be repeat buyers could not purchase because they first needed to sell the homes they already owned.
The good news on pending sales in April was tempered by the latest inventory statistics. Housing inventory rose to its second highest level ever with 4.55 million homes listed for sale - an 11.2 month supply at the current sales pace and an increase of 10.5 percent from the prior month (or by 434,000 units). Part of the rise in supply is due to a normal seasonal increase from March to April. More new inventory reached the market over these two months than in any other months. Even so, the high inventory levels are uncomfortable. It is also a signal to many home sellers to be more realistic about pricing to attract buyers. Unless you have those immaculate, unique home features, don't even bother listing if you are not going to concede on prices in today's market.
Because of high inventory, home prices are continuing to fall in most parts of the country. The national median existing home price in April was $202,300 -- an 8.0% decline from one year ago and the second largest price decline since NAR began tracking price data in 1968. It is important to note that some of the price declines are not genuine housing value declines; they just reflect the fact that more smaller-sized and lower-priced homes are being sold.
The up-tick in the latest pending sales will help existing home sales to be modestly higher in the second quarter of this year versus the first quarter. The sales in the third and fourth quarters are anticipated to be notably higher. There are several underlying reasons:
*Removal of "declining market policy" by Fannie and Freddie. Fannie Mae and Freddie Mac had imposed a "declining market policy" of requiring a higher down payment and higher credit scores in lending in regions where prices had been falling. However, that policy exacerbated the downturn by reducing housing demand. Given that "Fan and Fred" were created with the mission of providing credit in times of crisis - they decided to do away with that policy beginning this month (June 2008). This is welcome news in terms of maintaining underwriting standards without going overboard in being too stringent.
*Significant reduction in conforming jumbo mortgage rates. Another very positive development is in the falling mortgage rates on conforming jumbo rate loans recently. In spite of newly enacted legislation early in the year raising the loan limit, the mortgage rates on these higher loans did not fall. However, Fan and Fred have become very active in purchasing these loans and mortgage rates have fallen by a full one-percentage point - e.g., from 7.5 percent to 6.5 percent. That is a great news for home buyers in high-cost regions. (The super jumbo non-conforming loans still carry very expensive interest rates.)
*More applications for FHA loans by borrowers who would have been sub prime borrowers this time last year. Since the summer of 2007, home sales were hampered by a sudden disappearance of sub prime loans. But FHA loan applications have been rising and I believe the FHA program will be able to bring some of the buyers who would have used sub prime loans into government-backed loans that carry much lower interest rates.
*Improving economy. The economy will see a growth of about 2 percent in the second half of this year. That will turn the job market to the positive side with net job gains possibly of 350,000 in the second half.
*Home buyer tax credit. There is a better than 50-50 chance that the President will sign a big Housing bill from Congress before the 4th of July. The key element of the bill from my point of view is the temporary home buyer tax credit. This tax credit will induce fence-sitters back into the marketplace.
*Chain reaction buying. Many home sellers are not able to buy because they cannot sell their homes. However, there is always a bit of chain-reaction momentum that will build. An increase in buying unleashes existing sellers to buy the next home - and so forth.
As a result, I see improved sales in the second half of this year. Prices are more difficult to predict. More transactions have been occurring on the lower end. But we may begin to see more sales in the higher end with falling rates on conforming jumbo loans and from the chain-reaction factor.
"Copyright National Association of REALTORS®, Reprinted from REALTOR.org
with permission."
March, 2008
Nationally things are looking up for the real estate industry. Congress  gave overwhelming final approval February 7, 2008 to the Economic Stimulus Package supported by National Association of Realtors and Realtors across the country.
As a result, the government will be sending payments to most American households and grant tax incentives for business investment the plan totals $152 billion. The final deal came Wednesday after the Senate added low-income seniors and disabled veterans to the list of people who would receive money under a package previously approved by the House, and then approved the bill, 81 to 16.
The legislation includes the requested GSE and FHA reforms strongly backed and lobbied by NAR. The increased loan limits mean borrowers will see immediate relief with new liquidity in the mortgage market and the nation will see an additional 300,000 home sales. The increased FHA loan limits means an additional 138,000 Americans will purchase homes, and with the needed FHA reforms means 200,000 families can refinance their homes safely and affordably.
From Pensacola to Key West, buyers are taking advantage of the lowest Florida home prices in several years. “Pricing on both homes and condominiums has been drifting downwards in the past year, as sellers have become more realistic in their expectations,” said Nancy Riley, a broker with Coldwell Banker Residential Real Estate in Pinellas County and the 2007 president of the Florida Association of Realtors® (FAR).
In November – Florida’s median sales price for existing single-family homes was $215,800, down 10 percent from a year ago. The median is the midpoint where half the homes sold for more, and half for less. The statewide median sales price for condos was $186,700, down 9 percent from November 2006.
In Naples, “prices have adjusted to a more realistic range than in 2005,” said Sally Masters, broker-associate with Coldwell Banker’s North Naples office. “There are some great deals here as far as waterfront properties, golf course communities and estate homes.”
Mike Pappas, president/CEO of The Keyes Company, Miami, noted that lower sales levels and a high inventory, resulted in a 20 percent reduction in Broward condominium prices in the past year, while condos in the Boca Raton/West Palm Beach market declined nearly 30 percent.
Nationally, Lawrence Yun, chief economist for the National Association of Realtors® (NAR), recently said he expects existing-home prices to hold steady this year at the 2007 level of $217,600.
Locally in the Lower Keys we are seeing the same effects. Prices have dropped on an average of 20-25% in the last 2 years. We are seeing a positive movement in the number of units sold from quarter to quarter.
It’s the magic time to buy in the Florida Keys…
Don’t be at the bus station when your train comes in!!!!!
Cheryl Moses
REALTOR®, Broker & Co-Owner
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