Real Estate Where Home Prices Are Hitting Bottom Francesca Levy, 09.18.09, 7:00 PM ET
There's more to indicate that the housing recession has hit bottom than Thursday's dual announcements that housing starts rose 1.5% from July, and new jobless claims dropped by 12,000 last week.
Homeowners looking to sell are also putting the brakes on the trend of aggressive price cuts, indicating that the real estate market may be closer to salvation than previously thought. In 20 major U.S. housing markets, the percentage of homes that have suffered price reductions is dropping.
Thirty-nine percent of for-sale homes in 20 major U.S. metros have had their prices reduced. That's a drop of six percentage points, from 45% at the beginning of the year, according to data provided to Forbes by Altos Research. That the number of for-sale homes with startling cuts has dropped is a sign that the real estate market may soon reverse its downward slide.
"The percent of homes on the market with price reductions is a really insightful indicator of organic levels of demand," says Michael Simonsen, chief executive of Altos Research. "As this number is dropping, there's improving demand at current prices."
Realtors and homebuyers have gotten used to a market cluttered with homes whose price expectations have tumbled back down to earth. Currently, a $1.3 million 1950s home in central Washington, D.C., has 42.2% shaved off its original asking price. A designer mansion in Los Angeles may seem exorbitantly priced at $16.9 million, but that's 32.4% less costly than it was eight months ago. And a modest but presentable Vegas two-bedroom is going for a song at $65,000--55.8% less than its original quote.
Believe it or not, this is all good news. While shrunken quotes like these crop up far more frequently now than they did two years ago, these are only a few standouts in major metro areas that, by and large, are starting to see a reversal of the price-slashing trend.
Behind the Numbers To find out where home prices are showing signs of recovery, Forbes used data produced by Altosresearch.com, a Mountain View, Calif.-based research firm that tracks the percentage of homes on the market that have seen price reductions. Altos watches these numbers for 20 Metropolitan Statistical Areas: geographic entities defined by the U.S. Office of Management and Budget, for use in collecting statistics. These MSAs were chosen based on the cities used for the S&P/Case-Schiller 20-city home price index, which is used to track U.S. residential real estate trends.
The news is best in Las Vegas, Phoenix and Miami, markets that saw the steepest price inflation a couple of years ago. In these places, the number of cut-price homes is down 24, 18 and 12 percentage points since Jan. 1, respectively.
Although the numbers are still high--40% of Phoenix homes have been discounted, compared to single-digit numbers in previous years--the dramatic reduction in price cuts here is a sign that buyer demand is rising to meet the excess of supply that was caused by irrationally exuberant building practices earlier in the decade.
The cities with the highest number of reduced-price homes are Minneapolis, Seattle and Portland. Although the percentage of on-sale homes in these cities has dropped by 7%, 6% and 4% respectively since January 1, these metros have price reductions on nearly half of all homes on the market.
While in Minneapolis, this may be a product of deeply rooted economic troubles facing manufacturing economies in general, in Portland and Seattle, the high number of priced-to-sell homes more likely reflects the excess housing inventory that the housing bubble brought to the West Coast. While Portland and Seattle were included in the Altos analysis, they were not among the ten cities with the biggest improvements in the percentage of home price reductions.
Cities like Cleveland and Dallas, however, have yet to see major improvement. The percentage of homes with lowered asking prices has stayed flat in the last nine months, at 38% and 44%, respectively. In Cleveland, this could mean that loosening of bank credit, increases in buyer confidence and effects of the government stimulus haven't successfully tipped the supply/demand balance, so prices are still being slashed aggressively.
But while Dallas has seen a relatively high number of reductions, those reductions are not drastic; Dallas home prices will have dropped less than 1% for the year by the end of 2009, according to data from Moody's Economy.com.
The Bottom Line On the whole, these numbers show that excess inventory may be thinning--with realtors confidently holding firm on their prices, sensing that buyers are tiptoeing back into the market. But this newly buoyant buyer sentiment may be partly due to the first-time homebuyers' tax credit, a measure enacted as part of the Obama administration's stimulus package that offers an $8,000 tax credit to those buying their first home.
The credit is due to expire on Nov. 30, and while lobbyists for realtors and homebuilders are fighting to extend and expand the benefit, if they are unsuccessful, demand may once again recede, and the number of half-price for-sale signs could once again creep up in many neighborhoods.
"There are more people in the marketplace, because a fair number of them have this $8,000 tax credit behind them," says David Crowe, chief economist for the National Association of Home Builders. "The demand will fall off when the credit expires, and that could cause a backslide in house prices."
Real Estate Where Home Prices Are Hitting Bottom Francesca Levy, 09.18.09, 7:00 PM ET
There's more to indicate that the housing recession has hit bottom than Thursday's dual announcements that housing starts rose 1.5% from July, and new jobless claims dropped by 12,000 last week.
Homeowners looking to sell are also putting the brakes on the trend of aggressive price cuts, indicating that the real estate market may be closer to salvation than previously thought. In 20 major U.S. housing markets, the percentage of homes that have suffered price reductions is dropping.
Thirty-nine percent of for-sale homes in 20 major U.S. metros have had their prices reduced. That's a drop of six percentage points, from 45% at the beginning of the year, according to data provided to Forbes by Altos Research. That the number of for-sale homes with startling cuts has dropped is a sign that the real estate market may soon reverse its downward slide.
"The percent of homes on the market with price reductions is a really insightful indicator of organic levels of demand," says Michael Simonsen, chief executive of Altos Research. "As this number is dropping, there's improving demand at current prices."
Realtors and homebuyers have gotten used to a market cluttered with homes whose price expectations have tumbled back down to earth. Currently, a $1.3 million 1950s home in central Washington, D.C., has 42.2% shaved off its original asking price. A designer mansion in Los Angeles may seem exorbitantly priced at $16.9 million, but that's 32.4% less costly than it was eight months ago. And a modest but presentable Vegas two-bedroom is going for a song at $65,000--55.8% less than its original quote.
Believe it or not, this is all good news. While shrunken quotes like these crop up far more frequently now than they did two years ago, these are only a few standouts in major metro areas that, by and large, are starting to see a reversal of the price-slashing trend.
Behind the Numbers To find out where home prices are showing signs of recovery, Forbes used data produced by Altosresearch.com, a Mountain View, Calif.-based research firm that tracks the percentage of homes on the market that have seen price reductions. Altos watches these numbers for 20 Metropolitan Statistical Areas: geographic entities defined by the U.S. Office of Management and Budget, for use in collecting statistics. These MSAs were chosen based on the cities used for the S&P/Case-Schiller 20-city home price index, which is used to track U.S. residential real estate trends.
The news is best in Las Vegas, Phoenix and Miami, markets that saw the steepest price inflation a couple of years ago. In these places, the number of cut-price homes is down 24, 18 and 12 percentage points since Jan. 1, respectively.
Although the numbers are still high--40% of Phoenix homes have been discounted, compared to single-digit numbers in previous years--the dramatic reduction in price cuts here is a sign that buyer demand is rising to meet the excess of supply that was caused by irrationally exuberant building practices earlier in the decade.
The cities with the highest number of reduced-price homes are Minneapolis, Seattle and Portland. Although the percentage of on-sale homes in these cities has dropped by 7%, 6% and 4% respectively since January 1, these metros have price reductions on nearly half of all homes on the market.
While in Minneapolis, this may be a product of deeply rooted economic troubles facing manufacturing economies in general, in Portland and Seattle, the high number of priced-to-sell homes more likely reflects the excess housing inventory that the housing bubble brought to the West Coast. While Portland and Seattle were included in the Altos analysis, they were not among the ten cities with the biggest improvements in the percentage of home price reductions.
Cities like Cleveland and Dallas, however, have yet to see major improvement. The percentage of homes with lowered asking prices has stayed flat in the last nine months, at 38% and 44%, respectively. In Cleveland, this could mean that loosening of bank credit, increases in buyer confidence and effects of the government stimulus haven't successfully tipped the supply/demand balance, so prices are still being slashed aggressively.
But while Dallas has seen a relatively high number of reductions, those reductions are not drastic; Dallas home prices will have dropped less than 1% for the year by the end of 2009, according to data from Moody's Economy.com.
The Bottom Line On the whole, these numbers show that excess inventory may be thinning--with realtors confidently holding firm on their prices, sensing that buyers are tiptoeing back into the market. But this newly buoyant buyer sentiment may be partly due to the first-time homebuyers' tax credit, a measure enacted as part of the Obama administration's stimulus package that offers an $8,000 tax credit to those buying their first home.
The credit is due to expire on Nov. 30, and while lobbyists for realtors and homebuilders are fighting to extend and expand the benefit, if they are unsuccessful, demand may once again recede, and the number of half-price for-sale signs could once again creep up in many neighborhoods.
"There are more people in the marketplace, because a fair number of them have this $8,000 tax credit behind them," says David Crowe, chief economist for the National Association of Home Builders. "The demand will fall off when the credit expires, and that could cause a backslide in house prices."
Wait a second. At a time when real estate prices have been in almost perpetual free fall for more than a year, are there really places around the U.S. where home values are going up? Unbelievable as it may sound, yes.
According to real estate site Zillow.com's second-quarter home value index, there are more than 30 metro areas across the country where values have risen from the first quarter of the year to the second quarter.
The winner?
Boulder, Colo., the affluent Denver suburb where the share of homes with increasing values rose nearly 60%.
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Mississippi World Trade Center Employs CenTradeX Database Company to Provide Mississippi Companies with Trade Information
The Mississippi World Trade Center, a non-profit membership organization dedicated to assisting Mississippi businesses with all aspects of international trade, recently began using CenTradeX, a web-based database company that offers companies a worldwide competitive advantage by providing the most comprehensive trade information available. The program allows users to find information regarding import and export activity, as well as any industry or product they may be researching, for 200 countries and all 50 states.
Pending home sales rose with many first-time buyers taking advantage of historically good housing affordability conditions, according to the National Association of REALTORS®.
The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in March, increased 3.2 percent to 84.6 from a level of 82.0 in February, and is 1.1 percent higher than March 2008 when it was 83.7.
Lawrence Yun, NAR chief economist, said it should take a few months for the market to gain momentum. "This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a downpayment," he said. "We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around."
NAR's Housing Affordability Index2 remained near record highs. The affordability index was 166.7 in March -- down from an upwardly revised record of 174.4 in February due to higher home prices in March. The index remains 30.8 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.
The Pending Home Sales Index in the South rose 8.5 percent to 93.2 in March and is 7.7 percent above a year ago. In the West the index increased 3.9 percent to 93.1 and is 1.7 percent higher than March 2008. The index in the Northeast fell 5.7 percent to 59.5 in March and is 24.1 percent below a year ago. In the Midwest the index slipped 1.0 percent to 82.3 but is 8.2 percent higher than March 2008.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said the increase in buying power is quite remarkable. "Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment," he said. "For buyers who've been on the sidelines and have good jobs, the market has never looked more favorable. Homeownership has always offered immediate benefits and long-term value, but the advantages in today's market are unique."
A median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of that amount. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.
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1The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
2The Housing Affordability Index is a relative index where a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced existing single-family home, taking into account the relationship between median home price, average effective interest rate for loans closed on existing homes, and median family income. The higher the index, the better housing affordability is for buyers.
The calculation assumes a downpayment of 20 percent and a qualifying ratio of 25 percent of gross income for mortgage principle and interest payments. The index is a general gauge with conditions varying widely around the country. Affordability conditions are lower for first-time buyers with smaller downpayments and less income.
Monthly publication of the index began in 1981 with annual data calculated back to 1970.
The National Association of REALTORS®, "The Voice for Real Estate," is America's largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.
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