The Wood and Fiber Supply Chain Experts
Housing Market Update
From the July 2010 Forest2Mill newsletter.
The bottom fell out of both new home sales in May, a direct result of
the expiration of home buyer tax credits. Existing home sales weakened as well. (Table 1).
New home sales fell by a staggering 32.7 percent in March, more than
twice the decline that analysts expected. Because new home sales are counted when the contract is
signed, not at closing like existing homes, the expiration of home buyer credits had a more
dramatic effect on new home sales. Months of new home inventory increased 46.6 percent in May,
jumping from 5.8 months to 8.5 months. Despite this poor showing, new home sales are still 7
percent higher than they were in May 2009.
Sales of existing single-family homes declined by 2.2 percent from
April's level, though they were still 19.2 percent above May 2009. Months of inventory fell
slightly.
Lawrence Yun, the chief economist for the National Association of Realtors (NAR), expects
one more month of relative stability in the existing home sale numbers, although "approximately
180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able
to finalize by the end of June due to delays in the mortgage process, particularly for short
sales." Both houses of Congress passed legislation extending the deadline until the end of
September last week; President Obama was scheduled to sign the legislation over the weekend.
The Pending Home Sales Index, a leading indicator of existing home sales in the months ahead, suggests that existing home sales will follow new home sales in the months ahead. The National Association of Realtors reported that its index for sales agreements for previously occupied homes crashed in May, falling 30 percent in May, the lowest ranking since 2001.This is 15.9 percent lower than May 2009.
The new residential construction numbers reinforce the bad news. Housing starts in May declined by the most since March 2009 (off 10 percent from April), and building permits, a sign of future construction, fell to a one-year low (down 5.9 percent from April), according to the Commerce Department (Table 2).
The National Association of Home Builders/Wells Fargo Housing Market
Index (HMI) dropped five points to 17 in June. Builder confidence in the market for new
single-family homes fell back to February's level, now equivalent to their pre-2010 home buyer tax
credit level.
“The home buyer tax credit did its job in stoking spring sales and we expected a temporary
pull back in the builders’ outlook after the credit expired at the end of April,” said NAHB
Chairman Bob Jones, a home builder from Bloomfield Hills, Mich. “However, the reduction in consumer
activity may have been more dramatic than some builders had anticipated, which resulted in their
lower confidence levels.”
“We expected some softening in the market following the expiration of the home buyer tax
credit and this report seems to verify this assumption,” said NAHB Chief Economist David Crowe. “In
the coming months, an improving economy, rising employment, low mortgage rates and stabilizing home
values should help the housing market move forward. But as today’s HMI data shows, builders still
remain very cautious and are aware that several factors could impede the nascent housing recovery,
including serious problems in obtaining financing for the production of housing, faulty appraisal
practices and competition from short sales and foreclosed properties.”
Interest rates are at their lowest levels since the 1950s. Weekly changes in the Mortgage
Applications Survey conducted by the Mortgage Bankers Association (MBA) are summarized in Table
3.
According to Standard & Poor's Case-Shiller report, "a s of April 2010, average home prices across the United States are at similar levels to where they were in late summer/early autumn of 2003. From their peak in June/July of 2006 through the trough in April 2009, the 10-City Composite is down 33.5% and the 20-City Composite is down 32.6%. The peak-to-date figures through April 2010 are -30.5% and -30.0%, respectively." While home prices are relatively low, some analysts believe they need to fall even further to be consistent with historic averages.
Additional Stories from the July 2010 Forest2Mill Newsletter:
Industry at a
Glance
Will New
Industrial Boiler MACT Standards Affect You? Act Now.
Pacific Northwest
Update
USDA
Approves ArborGen Tests: Location of Genetically Modified Eucalyptus Test Sites
Biomass
Harvest Guidelines