John Burns Gives Housing Supply an F
Existing home sales volumes are down 30% from their mid-decade peak and are now at 1998 levels, according to John Burns Real Estate Consulting (JBREC). Of all the variables graded for the overall report, housing supply scored an F due to the oversupplied nature of the market. As HousingWire previously reported, while the decline is significant, it could be worse, the firm said. Sales volume is “propped up” by government intervention — the homebuyer tax credit, high volumes of Federal Housing Administration (FHA)-insured mortgages, Freddie Mac (FRE) and Fannie Mae (FNM) bailout, and Federal Reserve's mortgage rate intervention — and investor purchases exceed 2005 levels as a percentage of total activity. “In other words, there would be far fewer home buyers today (just as there was in 1968-70, 1973-75, 1981-83 and 1990-92) and house prices would be falling even further,” company president John Burns wrote. Despite the decline from records previously reached this decade, resale transactions are at a rate of 4.4 per 100 households, higher than the historical norm of 3.9 transactions per 100 households. Burns advised the real estate industry to watch for regulatory changes that could come with the approval of pending legislation, affecting everything from down payment requirements, FICO scores, insurance premiums, limits on certain types of buildings, dollar limits and limits on costs that can be paid by the seller. “Therefore, if you run a business that is tied to housing, pay far more attention than usual to what is going on in Washington DC as it is likely to determine the health of your business in 2010,” Burns added. The firm graded a number of economic factors that contribute to the housing market. There’s an oversupply of homes nationally and the JBREC gave the sector a grade of F. Housing completions improved month-over-month, but are still off 25% year-over-year. “Although vacancy rates in the US have improved in recent quarters, the majority of the US remains oversupplied compared to history. Just four states in the US are currently undersupplied - Texas, Louisiana, West Virginia and Iowa,” Burns said. Economic growth scored a D, as the economy remains weak despite modest improvements. The Q309 gross domestic product increased 2.8% from Q209, the first quarter-over-quarter increase in a year, but is coming off “very low numbers.” Fewer people are losing their jobs, but 4.7m jobs were lost over the last year, a decline of 3.4% in total workforce payroll. Housing affordability got a C-. With low prices and mortgage rates, the housing cost-to-income ratio is at 26.1%, JBREC said, the lowest since 1981. The national homeownership costs are now $54 more expensive per month than renting the average apartment, and in some markets, is even lower. But household income has fallen 4% year-over-year and now averages at $53,293. The existing home market continues to improve and received a grade of C-. Sales numbers have improved due to the homebuyer tax credit, but the national median prices fell another 7% year-over-year in October. JBREC noted a slower rate of decline in the Standard & Poor’s (S&P)/Case-Shiller national home price index. While the index is down nearly 9% year-over-year, that’s better than the 19% decline in Q109. The new home market is in flux and got a grade of D. Builder confidence declined in December, but sales volume picked up in the fall compared to last year. In addition, the median single-family new home price increased to $212,200 in October month-over-month but declined 0.5% year-over-year. Unsold home inventory decreased to 6.7 months, down from 7.4 months in November, “a large improvement compared to 12.5 months of supply in the beginning of 2009,” John Burns wrote. Leading indicators received a grade of C-, as indices of future economic growth have declined slightly. In October, the Leading Economic Index six-month growth rate declined to 10.2%, but remains one of the largest year-over-year growth rates in the index’s 26-year history. Another gauge of future economic growth, the Economic Cycle Research Institute (ECRI) Leading Index, declined to 23%, but is one of the largest growth rates since that survey began in 1968. Other leading indicator indices point to improvement in the stock market, homebuilding, bond investment market and CEO confidence. Write to Austin Kilgore. The author held no relevant investments.