Yesterday, in NEW$ & VIEW$ (17 Oct. 2011), I wrote the first “not negative” piece on housing in a long, long time. In effect, homes listed for sale have declined to their lowest level since 2007 (Slim Pickings Are Latest Headache for Home Sales). Housing supply needs to shrink to arrest price erosion, real or anticipated, before demand reappears. It has started to happen in Detroit where job growth has been improving lately.
Metro Detroit home sales rose for the third straight month in September, boosted by higher demand and lower inventories of homes for sale. The combination also pushed up median sales prices by 10% in September compared with the same month a year ago.
“As soon as anything hits the market, it’s a stampede to get there,” said Plymouth Realtor Andy Hargreaves. “It’s not uncommon for us to see five to eight offers on a good home.”
Foreclosures remain a big overhang but banks appear more willing to accelerate the divestiture process. (Home Short Sales Rise in ‘Dramatic Shift’ That May Boost U.S. House Prices):
There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc., the second-biggest U.S. residential brokerage. (…)
“Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. (…)
Because short sales typically are occupied soon after the deal, neighboring properties take less of a hit in values, according to Popik. (…)
Pent-up demand has been building in the past 3 years and affordability ratios are back at pre-bubble levels:
Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.
“Based on incomes, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. (…)
Measured by the price-to-rent ratio, prices are fairly valued, or undervalued, in around 20 markets. Nationally, the price-to-rent ratio stood at 14.85 at the end of September, above the 1989-2003 average of 12. The data suggest pockets of the country have further to fall.(…)
A shift in sentiment on house prices might be about to happen nationally. If so, demand will come back, activity would improve and supply would gradually diminish, further helping prices… The recovery process will admittedly be slow and bumpy, when it really happens, but it seems appropriate to monitor housing more actively at this point.
And this other positive second derivative piece: NAHB Housing Market Index: 18 vs.14. The boost in builder confidence is “a good sign that some pockets of recovery are starting to emerge,” NAHB Chief Economist David Crowe says, but “while some builders have shifted their assessment of market conditions from poor to fair, relatively few have shifted their assessments from fair to good. 18 is better than 14, but only marginally closer to 50. When the supply of existing homes for sale will have declined, demand for new houses will resurface, and so will construction employment.