Posted by Jonathan J. Miller -Thursday, September 29, 2005, 11:21 PM
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While the Fed has expressed concern about the risk of inflation by tightening short term rates, there may be a plus side to rising fuel prices at the gas pump [WSJ].
And the winner is? Housing.
Foreign oil producers are investing their excess dollars in the US debt markets which is expected to keep bond yields low, thereby keeping mortgage rates down.
Does this mean we will see housing prices rise at the same torrid pace this year like we have seen over the past few years? Probably not. The supply of housing has been rising and affordability has been tested as lenders pare back on higher risk loan products [Matrix].
Low mortgage rates have become the constant in the housing equation. Now its time to focus our attention on supply.
Posted by Jonathan J. Miller -Thursday, September 29, 2005, 10:49 PM
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A sign that lenders are growing concerned with the housing market, some have raised their requirements [WSJ], especially specialty financing products like option ARMS and interest only mortgages. These moves come as the Federal Reserve has begun to raise concern about rising risk levels in the housing market but has been careful not to upset the housing market [Matrix].
Posted by Jonathan J. Miller -Thursday, September 29, 2005, 7:58 AM
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A survey [WSJ] by Royal Bank of Canada’s RBC Capital Markets unit of 1001 consumers found that most owners think their homes will continue to appreciate and the housing boom has not affected their spending patterns.
The results of this survey seems to indicate that consumer perceptions of their spending habits contradicts the Fed’s pronouncement that the consumer is driving the economy through extracting equity from their homes.
The sample was spread across geography, gender
and income brackets, to make it representative
of the general U.S. population. The survey’s
margin of error was plus or minus 3%.
Only 10% of homeowners polled said they believe that rising real-estate values had affected their spending.
85% of homeowners surveyed said they had experienced real-estate gains in the past three years
70% saw gains of more than 10% in the past three years
50% had extracted funds through home equity loans
60% expect home values to rise at least 5% annualy for the next 3 years.
3% expect home values to fall over the next 3 years.
60% said rising energy costs were causing them to reign in spending.
Posted by Jonathan J. Miller -Wednesday, September 28, 2005, 9:15 PM
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A recent article by columnist Chet Courier at Bloomberg News asks the question: Is now a good time? Like the stock market, there are people who are convinced that the market is at the top and its now time to sell. Mr. Courier provides a lot of common sense for that question, “Is now a good time to sell?”
Media coverage has been full of get-rich quick stories and seemingly no-lose scenarios.
Yet the costs associated with selling are high and the transaction can be complex. Simply put, real estate is a lot less liquid than stocks. There are a lot of stories and assumptions made about market timers, those that have made fortunes selling at the right moment, but much of that is overblown or exagerated.
Likewise, homeowners could tie themselves in
knots trying to decide when the absolute top
of the market for their properties will be seen.
The best time to sell, or buy, a house may be
whenever you are ready to move.
Posted by Jonathan J. Miller -Tuesday, September 27, 2005, 10:01 PM
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The Conference Board Consumer Confidence Index falls to its lowest level since October 2003
This survey for September runs through the 20th so it incorporated the effects of Hurricane Katrina and Rita, the spike in gasoline prices and less optimistic job market.
The Consumer Confidence Survey is based on a
representative sample of 5,000 U.S. households.
Despite the sharp drop, the Fed is talking about future interest rate hikes [MarketWatch]. Ironically, it would seem that consumer pessimism is better suited for the housing market, rather than a robust economy, by keeping mortgage rates low.
Posted by Jonathan J. Miller -Tuesday, September 27, 2005, 8:51 PM
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The US Census Bureau and the US Department of Housing and Urban Development released the New Residential Sales Report for August 2005 [PDF].
Here are the highlights: [MarketWatch]
* The survey represents about 15% of all residential housing sales.
* Sales of new homes fell 9.9% from July 2005
* Sales of new homes increased 6.2% from August 2004
* Listing inventory increased 2.6% from July 2005
* Listing inventory increased 18.0% from August 2004
* A 4.7 month supply of housing at the present rate, up 14.6% from 4.1 months in July 2005
* A 4.7 month supply of housing at the present rate, up 9.3% from 4.3 months in August 2004
* Median sales price was $220,300, up 2.5% from $215,000 in July 2005
* Median sales price was $220,300, up 1% from $218,100 in August 2004
For more charts:
[Calculated Risk]
What does this all mean?
Well, the survey size is small relative to existing home sales but its based on contracts so its closer to actual market conditions right now. Did you know that this survey is not made based on actual sales data but rather it is based on sample surveys?
The report indicates that the national housing market for August weakened with a drop in volume from last month, an expansion of inventory, yet still an increase in prices. Much of the drop was artibuted to the slow down in multi-family housing, namely condominiums and rentals [REJ]. The jump in mortgage rates in July may have been one of the catalysts for the slow down.
Posted by Jonathan J. Miller -Monday, September 26, 2005, 10:15 PM
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Here’s a set of useless housing trivia [San Diego Union-Tribune]
The world’s largest residence is Istana Nurul Palace, the home to the Sultan of Brunei. With more than 200,000 square feet of floor space, including 257 bathrooms, it dwarfs Aaron Spelling’s little 36,500-square-foot shack, which is the largest house in Hollywood.
The smallest house is a wee cottage in Conway, Wales, that measures roughly 6 feet by 10 feet by 8 feet. It’s so tiny that it has no bathroom, and its most modern feature is a faucet!
The most expensive house ever built is the Hearst Castle in San Simeon. It was built for William Randolph Hearst between 1922 and 1939 at a total cost of more than $30 million. In today’s dollars, that’s nearly $276.9 million. That makes the most expensive house sale – the $101.9 million paid in 1997 for a property in London – look like chicken feed.
Posted by Jonathan J. Miller -Monday, September 26, 2005, 8:57 PM
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Federal Reserve Chairman Alan Greenspan spoke to the American Bankers Association today [Federal Reserve] and re-visited the topic of housing. He indicated that any decline in home prices would not necessarily be disruptive [MarketWatch].
Some key points from the a new study he co-authored:
- Owner-occupied homes have risen 9% on average annually.
- US housing market is a collection of local market loosely connected by mortgage rates, migration and construction capacity.
- Speculation is largely local, the fees associated with a sale are a formidable barrier.
- 14% of home purchases are second homes up from 7% in 2000.
- Less than 5% of all home mortgages have an LTV greater than 90%.
- The use of piggy-back loans is not strongly correlated with housing appreciation.
- LTV are lower in states with the highest appreciation rates.
These are interesting points made that seem to belie many of the arguments that high risk financing is causing a housing bubble.
Posted by Jonathan J. Miller -Monday, September 26, 2005, 11:50 AM
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Approximately 85% all residential home sales are existing homes. The large sample size makes the monthly NAR report representative of the country’s housing market as a whole than then new home sale stats released by the US Commerce Department tomorrow. However, existing home sales are based on closings so it lags the current market while new home sales are measured at time of contract.
The housing market has been the main driver of the U.S.
economy this decade, accounting for 50 percent of the
overall growth and more than half of the private payroll
jobs created since 2001, Merrill Lynch said in a report
on Aug. 15.
Today the NAR released their existing home sale statistics for August and the sesults were quite robust [Bloomberg]. The number of sales for August increased 2% over the prior month and 7.8% over the prior year suggesting that the rate of existing home sales has increased this summer.
The median sales price of of a US existing home was $220,000, a record. It was up 15.8% from the prior year.
The NAR expects housing demand to continue to increase due to the Hurricane Katrina. The cleanup will provide a drag on the economy keeping mortgage rates low, the primary driver of the current high level of sales volume. Steady job creation, easy access to financing have kept demand high.
The results were somewhat of surprise given the traditionally slow summer months and the concerned positioning the Fed has taken on the housing market this summer. However, these statistics do not reflect the August market due to the delay between contract and closing date.
Posted by Jonathan J. Miller -Sunday, September 25, 2005, 9:15 PM
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The New York Times this weekend released the results of an analysis of the costs and benefits of home ownership and renting, considering the tax benefits [NY Times]. It is a difficult topic to cover.
The article concludes that now may be a better time to rent than buy since prices are rising, rents are just beginning to rise and buyers place too much emphasis on the tax deduction.
We have to give credit to the New York Times Real Estate Section for publishing this analysis since they depend largely on advertising revenues from real estate brokers. Whether or not you agree with their analysis, it is refreshing to see this sort of thing.
One point of contention I have with articles like this is the concept of valuing the bundle of rights of ownership. This is left largely out of rent to value equation because it is so subjective. For example, the Economist magazine has been trying to call the collapse of the housing market for the past 4 years [Economist] using the spread between rents and sales prices as the predictor of housing price inflation but does not attempt to quantify home ownership within their analysis.
Nearly every article like this has an advantage of ownership as a feature such as the freedom to change the “color of their living room walls,” but its not quantified. It seems to me that the rent that a property is worth does not reflect all components of its value.
In other words, if a premium is placed on owner occupancy in a given market, then the value to the purchaser would be higher for an owner occupant than it is to an investor. For example, even during the darkest days of the recession in New York, the Manhattan townhouse market reflected a premium for single family houses over two to four family houses. The rental income of the units in the building did not justify the prices being paid for two to four family houses using the multipliers and overall cap rates used by investors at that time as buyers opted to convert these houses to single family.
Using rents as the only way to quantify use and enjoyment of a property paints an incomplete picture.
In addition, the rent versus buy decision should only apply on a case by case basis. It sort of like saying that nationally housing prices went up x% and then applying that amount to your property. The same goes for the opposite end of the spectrum. Rosy reports of rising prices do not always apply to all properties in the same manner.
Related Links
Housing: Buy or Rent [Angry Bear]
NYTimes: Is It Better to Buy or Rent? [Calculated Risk]
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