Housing | timiacono.com - Part 5

No Spring Rebound for Existing Home Sales

The National Association of Realtors reported that sales of existing homes fell 0.2 percent in March to a seasonally adjusted annual rate of 4.59 million units as there appears to have been no spring rebound in home sales after the severe winter weather that saw home sales slow sharply last December. Unfortunately for buyers, home prices continue to rise.

This marks the seventh time in the last eight months that sales have moved lower, a change in direction that came just after the Federal Reserve began talking about tapering their bond purchases, talk that led to sharply higher mortgage rates last year. Of course, that’s about the same time that Wall Street investors began to lose interest in the housing market, a sector that is now clearly facing headwinds.

On a year-over-year basis, sales are now down 7.5 percent, the biggest decline since the housing bubble burst, save for the periods in 2010 and 2011 when the expiration of government subsidies spurred buying surges and subsequent slowdowns.

In contrast to falling sales volume, the median sales price continued to rise, jumping from $189,000 in February to $198,500 in March. This puts home prices up 7.9 percent from a  year ago, consistent with the 6.9 percent annual price gain reported by the FHFA earlier today. Low supply was blamed for both lower sales and higher prices, though rising inventory pushed the months of supply metric higher, from 5.0 in February to 5.2 in March.

So far, at least, it is clear that weather wasn’t to blame for the recent housing market swoon.

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Janet Yellen and the “B-Word”

John Cassidy writes in the New Yorker that Federal Reserve Chair Janet Yellen didn’t see fit to once mention asset bubbles in her speech at the Economic Club of New York the other day and that, in itself, is a bit disconcerting.

But what was most striking to me about Yellen’s remarks was that she didn’t even discuss the financial markets and the overriding need to avoid another damaging speculative bubble, like the ones that the American economy experienced in the late nineteen-nineties and mid-two-thousands. Indeed, Yellen didn’t use the B-word at all. Given that her immediate predecessors, Alan Greenspan and Ben Bernanke, will be remembered for, among other things, their roles in inflating the bubbles in the stock market and the housing market, that was a pretty remarkable omission.

Recent history can’t be avoided, and neither can the task of maintaining financial stability and avoiding boom-bust cycles, particularly in the credit markets. Together with maintaining an adequate level of over-all demand in the economy, which is necessary for investment and job creation to proceed, it is the key challenge that all central banks face. But Yellen didn’t even mention it. Instead, she couched her remarks in terms of the old-fashioned inflation-unemployment trade-off, which is precisely the conceptual framework that encouraged Greenspan and Bernanke to shrug off what was happening in the financial and housing markets.

It’s hard to believe that Yellen will be any different than her predecessors in spotting a looming crisis be it of the bursting asset bubble variety or something different.

Moreover, when considering that history rarely repeats, but often rhymes as Mark Twain purportedly quipped, the Fed will probably be more attuned to spotting something they’ve already seen (e.g., stock bubble, housing bubble, etc.) rather than the more likely case of something completely different (e.g., currency crisis, sovereign debt crisis, etc.)

Tyler Cowen of Marginal Revolution notoriety points readers to two CBC News stories about the listing of the cheapest house for sale in the Vancouver market at just under $600,000 and its subsequent sale just two weeks later at almost $50,000 more than the sellers asked.

From the latter, we learn the following:

Vancouver’s cheapest listed single family home attracted large numbers to open houses, with two written offers pushing the final purchase price seven per cent over asking.

The house was the cheapest listing in Vancouver last week.

The price of the 100-year-old, 1,951-square-foot, three-bedroom, detached house at 2622 Clark Dr. was set low initially due to its smaller size and half lot site.

“It’s very rare, and that’s why all the excitement,” said RE/MAX realtor Mary Cleaver.

“I believe this house was, potentially, saved because it is on a different kind of lot, one that isn’t necessarily appealing to builders. So this has been a lovely family home for 100 years and, if well taken care of, could house a family 100 years from today,” she said.

Looking at the house and that lot, the excitement really is perfectly understandable.

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The latest Gallup survey on investment preferences in the U.S. puts real estate ahead of gold and stocks for the first time in at least a few years in yet another example of how most people (at least in the U.S.) simply follow established trends.

Interestingly, those favoring real estate as the best long-term investment rose to as high as 50 percent a decade ago when the prior housing bubble was inflating.

There’s also a breakdown of preferences by income, age, and political party affiliation. Not surprisingly, those with higher incomes favor stocks and real estate over other investment choices and the appeal of gold goes up as income goes down.

By a wide margin, younger Americans think more highly of Savings accounts/CDs than do other age groups, but the most interesting part of this survey (at least to me) was how views toward equity markets change  based on party affiliation. Some 30 percent of Democrats think stocks are the best investment, but only 26 percent of Republicans agree, yet just 19 percent of independents also see it this way.

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