FACTS & TRENDS: U.S. Housing Mending

House prices remain weak in the U.S. but the underlying demand/supply data have been giving positive signals since October. Before prices can recover, supply must first decline, which has been happening. Meanwhile, demand is also coming back owing to record affordability, rising rental rates and slowly increasing credit availability. Pent-up demand is high and the recent improvement in employment conditions will help unleash it.

A better housing market will help the U.S. economy significantly.

  1. Construction employment which has lost 2.2 million jobs since 2006 would recover.
  2. Sales of home furnishings would strengthen,
  3. Banks balance sheets would improve.

Here are the facts gathered from previous News-To-Use posts:

  • Pending Home Sales Rise Again in November. The gains were broad based geographically. It is also the first time the PHSI has been above 100 since June 2007 without the benefit of any tax credit stimulus.
  • U.S. New Home Sales Increase. Still very feeble but a trend is a trend! New home sales needed a sharp decline in the inventory of existing homes for sale and that has happened. The inventory of unsold homes reached a new series low (-19.4% y/y) and it reached a new cycle-low of 6.0 months of sales.


  • KB Home on Dec. 23:

[Starts]New home deliveries rose 4% to 1,995 homes, while the cancellation rate decreased to 34% from 37% a year earlier as fewer deals fell through. The average selling price rose 2.5% to $238,400. Orders climbed 38% to 1,494 homes, and backlog—an indication of future business—grew 61%.

  • Existing home sales in November rose 4% from October’s levels to a seasonally adjusted annual rate of 4.42 million, the second-highest level of the year. Importantly, housing inventory declined to 2.58 million in November, down 18.1% from one year ago to the lowest level since the spring of 2005. Sales of existing single-family homes alone rose 4.5% m/m to 3.950M, up 12.9% y/y.


But real-estate agents say markets are stalled now because sellers aren’t willing to reduce prices furtherand are keeping their homes off the market rather than settling with buyers seeking deep discounts.

Buyers, meanwhile, remain frustrated by inventory that they say is unattractive or overpriced. A shortage of inventory has “caused buyers to go away,” said Ron Leis, a real-estate agent in Sacramento, Calif. “It’s our biggest issue right now. They lose interest because there just isn’t anything to buy” that meets their requirements.


Household formation has slowed drastically in recent years.  And though the slowdown in household formation coincided with the recession, as the economic recovery began and strengthened last year, household formation has yet to pick up.

Household Growing Pains

Macroeconomic Advisers (MA) recently examined Census Bureau population projections and “headship rates” (the share of people that head a household in various age groups) and projected that 13.7 million new households will form in the decade ending 2020.  Given vacancy rates and the size and age of the current housing stock, MA forecasts that these 13.7 million households are likely to spur the construction of 15.9 million units over that 10-year period.

  • Dec 20: Toll Brothers recently indicated that Q1 2012 new orders through early December were up 20% y/y. Last week, Hovnanian Enterprises said that November orders jumped 31% YoY.
  • Mortgage applications to purchase a home rose 8.3% last week to the highest level since April.foreclosures
  • Foreclosures remain high but keep in mind that 2 states, Florida and California, carry 35% of the foreclosed housing stock. Housing demand is slowly picking up across the US while “normal” inventory is diminishing rapidly. 
  • image_thumb[4]The IMI is designed to track housing markets throughout the country that are showing signs of improving economic health. The index measures three sets of independent monthly data to get a mark on the top improving Metropolitan Statistical Areas. The three indicators that are analyzed are employment growth from the Bureau of Labor Statistics, house price appreciation from Freddie Mac, and single-family housing permit growth from the U.S. Census Bureau. NAHB uses the latest available data from these sources to generate a list of improving markets. A metro area must see improvement in all three areas for at least six months following their respective troughs before being included on the improving markets list.

Even California is showing signs of healing:

  • California’s existing single-family home sales increased 0.9% MoM in October, on a seasonally adjusted basis, rising to an annual run rate of 493,240 units (+8.5% y/y). California’s non-seasonally adjusted pending sales index (PHSI) increased 11% y/y in October. . California single-family listed inventory decreased 7% y/y to 217,848 units and while significant shadow inventory remains and will gradually surface, the combination of rising real demand and reduced supply should help stabilize prices.
  • Nov. 28:

(…) monthly mortgage payments on the median priced home—including taxes and insurance—are lower than the average rent levels in 12 metro areas, according to data compiled for The Wall Street Journal by Marcus & Millichap, a real-estate brokerage that tracked 27 metro areas. It remains less expensive to rent than to buy in 15 cities. But affordability hasn’t done much to lift the sagging housing sector because many would-be buyers are unwilling to purchase a home or unable to qualify for a mortgage.

Note that of the 15 metro areas where mortgage payments are higher than rent levels, 6 are on the US west coast.

One hopeful sign is that inventories have fallen from their bloated levels of one year ago. (…) Visible inventory was down sharply in several markets, including by almost half in Miami and 40% in Phoenix.

Another example is South Florida, a hard hit bubble area, where the demand/supply equation is shiftingrapidly. Sales were 22,000 last month while residences for sale shrunk to 45,000.

  • Nov. 24:

SOUTH FLORIDA HOUSING MARKET STRENGTHENING: CondoVultures.com reports that South Florida’s residential resale inventory has decreased by 58% in the last 3 years. Nearly 108,000 residential properties were on the resale market in the tricounty South Florida region on Nov. 24, 2008.

Some three years later, the number of condos, townhouses, and single-family houses on the resale market in Miami-Dade, Broward, and Palm Beach counties has shrunk to fewer than 45,000 residences as of Nov. 21, 2011, according to analysis by the licensed Florida brokerage CVR Realty™.

The number of residential properties under contract in South Florida has spiked to nearly 22,000 – a large chunk of which are all-cash deals – as of Nov. 21, 2011, according to the analysis based on Florida Realtorsassociation data. Back in 2008, the pending sales in Miami-Dade, Broward, and Palm Beach counties totaled slightly more than 9,300.

(Many charts in this posts from Haver Analytics)

More?:  Facts & Trends


2 thoughts on “FACTS & TRENDS: U.S. Housing Mending

  1. another good post. Just wondering if you have thoughts to do something similar for the Canadian RE market, given all the fuss about total debt load carried by Canadians, esp in context of a slowdown in the global economy. I read articles here about interest rates causing the RE market to tank, but I believe it will be job losses due to the global slowdown that cause the RE market here to tank.

    • Tks. Nothing on Cdn RE yet nor in the works. Might be a cyclical downturn coming but nowhere near what we have seen in the US. Cdn banks are much more conservative and banking laws more stringent, preventing Cdn bankers from the same greed. I will try to post on that soon.

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