The Black Friday ads that started Nov. 1 are a stark reminder that retail businesses are still fiercely competing for limited consumer spending. Housing is having a hard time beating the iPhone 4s and Christmas deals as consumers continue to be cautious and personal income stagnates.
A quick update on current real estate market conditions across our coverage area:
- List prices are declining more rapidly from the May 2011 peak;
- Interest rates are still at crazy lows (rate history);
- September sales volume was down versus August (NAR report);
- Refinance applications are down and purchase loan applications are only slightly down over the last 4 weeks (Mortgage Bankers Assoc. Report);
- and inventory declined more rapidly as listings go into winter hibernation.
In our view, October was a sideways month. Purchase loan interest rates flirted with historical lows all month, yet home sale volume continued to drift down. Looking at NAR’s reported unit sales for the first 9 months of 2011, year-to-date sales have finally caught up with 2010. 2011 will boast an increase in unit sales over 2010, but the 2011 increase will be tiny. Reports indicate prices will be down at least 4% for the year and the foreclosure mess will drag on through 2013 or beyond. Keep the umbrella out, the housing market will be stormy again in 2012.
Check your local market stats on Movoto.com: http://www.movoto.com/market-statistics.aspx
New Home Sales are Depressed (ing?)
Capital Economics estimates that the supply of homes for sale is at least one million units above the demand for homes implied by current economic conditions. Weak new home sales support the theory there is a surplus of homes. New home sales for Sept. were at a seasonally adjusted rate of 313,000 new homes per year. New home sales have been stagnant for 3 years and stand at about 13% of peak new home sales just a few years ago. The low sales volume and falling prices of new homes are a strong indicator that demand is not driving the market.
Help from Washington?
The administration continues to rearrange the deck chairs, recently announcing changes to HARP (Home Affordable Refinance Program). The main changes are intended to make it easier for underwater homeowners to refinance their loan at today’s lower rates. In theory, this may keep more people in their homes, but in practice it’s likely that deeply underwater owners will eventually become “strategic defaulters”. Default will happen when they do the math and become discouraged about the prospect of their home regaining it’s value.
Let’s say you borrowed $300,000 to buy your house and now it’s worth $200,000. When you refinance with HARP, you’ll still owe $300,000, but you’ll be making a lower payment. BUT: Paying off the $100,000 in value you don’t have (over 30 years at 4.25%) costs just over $77,000 in interest payments. If you’re underwater by $100,000 and you could buy the same home down the street for $200,000 it’s easy to see the argument for finding a creative way to get out of your current home and into that beauty down the street.
If you have cash and a stable income and you’re trying to decide if now is a good time to buy, the answer is probably a loud “Yes!” Homes are on sale and you’ll look back 10 years from now and be amazed how cheap that home you bought (or let get away) was.
Mark Brandemuehl - VP of Marketing @ Movoto
Check out these recent Movoto Blog Posts for more news about the real estate market and Movoto.com
- Top 5 Best and Worst Housing Markets of 2011
- Movoto Named One of the Fastest Growing Companies in Silicon Valley
- Hello Buckeyes! Movoto Launches in Ohio
- Movoto Goes South to Alabama