Home Sales in September 2010?

Better than Expected?

Are these words we should get used to hearing around the real estate industry? Probably not yet, but as we roll off of the industry lows set this past July, many of the housing data points are offering relatively good news. Today's reported Existing Home Sales for the month of September did the same.

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Existing Home Sales

Driven by single-family home sales, Existing Home Sales were reported increased 10% to an annual pace of 4.53 million in September. While that's a sweet improvement, the latest measure still reflects a sad state of current affairs for housing. July's sales activity dropped off a cliff, you see, free falling 27% after the First-Time Homebuyers Tax Incentive deadline passed. The last two months have offered increase from there, but we are still well off the sales pace seen in June (5.26 million). Of course, that month was injected with a hit of government drugs, or tax stimulus, so we would look for something less groovy here anyway.

Economists were fooled though, as they had set their average mark at 4.3 million existing home sales for September. The result was therefore a tepid positive news bit, given the still soft absolute level of activity. Sales were 19.1% short of the 5.6 million annual rate recorded in last year's period. Plus, there are still plenty signs of trouble in housing, including the blood-letting foreclosure flow (excluding the effects of the robo-foreclosure moratorium). Credit is not easy to come by either, and creditworthy borrowers are even harder to find. Furthermore, unemployment is still stagnant and sad, keeping most jobless from even considering home purchase, but mortgage rates are in record low territory. That's a positive right? Well, a good part of the reason they're so low is due to the depressed level of demand for mortgages now. Remember that supply/demand stuff from economics class; I know, I slept through it too.

The National Association of Realtors (NAR) reported that according to Freddie Mac (OTC: FMCC.OB), the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.35 percent in September, from 4.43 percent in August. Looking back a year, the rate was 5.06 percent in September 2009. Housing prices are also accommodating, and getting cheaper, but that's another sign of a tough marketplace and thus a mixed news offering. According to the NAR, the national median existing-home price for all housing types was 2.4% lower than the prior year period. A key factor in the still falling price of a home is the fact that distressed properties accounted for 35 percent of sales in September, compared with 34 percent in August and 29 percent in the prior year period.

Benefiting from the increase in sales activity, existing home inventory fell by 1.9%, to 4.04 million homes. That is a 10.7 month supply of homes at the latest sales pace, down from the 12 month inventory level seen in August.

Regionally speaking, existing-home sales in the Northeast increased 10.1 percent, to an annual pace of 760,000 in September; that is still down 20.8 percent from September 2009. The median price in the Northeast was $239,200, which is 1.4 percent below a year ago. Existing-home sales in the Midwest jumped 14.5 percent in September to a level of 950,000 but are 26.4 percent below a year ago. The median price in the Midwest was $139,700, down 5.2 percent from September 2009. In the South, existing-home sales rose 10.6 percent to an annual pace of 1.77 million in September but are 14.9 percent lower than September 2009. The median price in the South was $149,500, down 2.6 percent from a year ago. Existing-home sales in the West increased 5.0 percent to an annual level of 1.05 million in September but are 16.7 percent below a year ago. The median price in the West was $213,600, which is 4.9 percent lower than September 2009.

The Chief Economist of the NAR, Lawrence Yun, says real estate is recovering, and should rise from here. This is a widely shared view, though we see a more stagnant state dragging on for a while longer. I also share the viewpoint with a handful of economists that home prices are in double-dip territory now, and moving lower. As this occurs and the news hits the presses, it will only act to discourage buyers further. With current crippled credit conditions in place, and economic growth tempered by a heavy unemployment drag, I cannot see robust recovery. Furthermore, post elections, we see a less aggressive government effort set to stymie economic growth another year or so.

Thus, home prices could decline another 10% to 20%. I believe special conditions would have to fall into place for a 20% decline, including an ugly war with Iran and skyrocketing transportation and energy costs. You will not hear this view expressed in many other places, and yet the event is a strong possibility. So, the only property I would be buying now is a distressed one that offers me a 20% cushion to value. How you like me now?



Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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