Housing | timiacono.com - Part 30

New Home Sales Rise. Who Cares?

In an announcement reminiscent of the early stages of the bursting housing bubble about five or six years ago, the Commerce Department reported(.pdf) that new homes sale rose last month, from a downwardly revised annual rate of 303,000 in September to a rate of 307,000 in October. September new home sales were originally reported at a 313,000 annual rate and, when comparing un-revised data to un-revised data, you get a decline in sales, but, comparing revised data to un-revised data produces a gain and rosy headlines.

This kind of rationalization was about all there was to help a lot of real estate investors keep the faith back in 2006. Today, with new home sales running at about one-third the pre-housing bubble rate and with the home building industry flat on its back for the foreseeable future, it’s just kind of an interesting side note.

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A Look at Global Home Prices

More from The Economist, from today’s interactive Daily Chart where, with the exception of the U.K.,  it’s relatively easy to identify which housing bubbles have already burst:

Ireland clearly had the biggest boom/bust cycle, though, some parts of the U.S. (e.g., Nevada, Arizona, California, etc.) would no doubt rival that rise and fall.

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Home Sales Rise, Home Prices Fall

The National Association of Realtors reported that sales of existing homes rose 1.4 percent last month, from a seasonally adjusted annual rate of 4.90 million units to 4.97 million units, however, the median home price fell to $162,500, representing a decline of 2.0 percent for the month and 4.7 percent from a year ago.

Unfortunately, now that the summer selling season has given way to a much slower sales pace during the fall and winter where investors seeking bargains are responsible for a rising share of sales, look for home prices to decline further in the months ahead.

Distressed sales (foreclosures and short sales) accounted for 28 percent of all sales last month, down from a 30 percent share in September, and investors purchased 18 percent of all existing homes in October versus 18 percent in the month prior. Look for both of these metrics to rise in the months ahead.

Total housing inventory fell from 3.40 million units to 3.33 million units and this represents an 8.0-month supply at the current sales pace, down from an 8.3-month supply in September, still almost double the typical 4-5 months of supply.

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Housing Starts Down, Permits Up

The Commerce Department reported(.pdf) that housing starts fell 0.3 percent in October to an annual rate of 628,000 units and permits for new construction (a key leading indicator for the industry)  jumped 10.9 percent to a rate of 653,000, however, as shown below, residential construction remains in a deep funk, current levels of home building now about one-third of what would be considered “typical” for the U.S. housing market (that is, if anyone remembers what “typical” is in this post housing bubble environment).

I wouldn’t be surprised if the 2009-2011 “flatline” shown above is extended for another few years or more. Home builders are now building about one million fewer homes per year than was their pre-housing bubble norm and there are probably about a million foreclosures per year set to hit the resale market and this should extend at least a few more years.

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Unlikely to Stay Millionaires for Long

When first looking at this Mercatus Center report (hat tip Daily Capitalist) on the dwindling ranks of millionaires in the U.S., I was a bit surprised about how hard the fall has been, but, after reflecting back on how many of those people reached that status when housing prices were soaring and stocks were booming, I guess it shouldn’t be too surprising.

A good example is the guy who sold us our house in a short sale last fall. We met briefly when negotiating the sale of personal items and I remember he asked me what type of work I did. When I said we were retired, he said he too planned to retire early after they had amassed a couple million dollars, but then he lost it all when the housing bubble burst. I never understood how people could ride it all the way up and then all the way down…

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