New Home Sales Drop in September 2009

New Home Sales Drop in September 2009

According to this Nashville Business Journal article, New home sales drop unexpectedly, "New home sales took a surprising turn downward last month, according to newly released government figures." According to the article, on 10/28/2009, the US Commerce Department reported that sales of new homes declined by 3.6 percent in September 2009 to a seasonally adjusted rate of 402,000 new home sale units.

The article stated the following new home sales figures:

• The number of unsold new homes fell for the 29th straight month to 251,000.
• The supply of new homes at current sales rates remained unchanged at 7.5 months.
• The median time it takes to sell a home remained unchanged at 13 months.
• The number of completed new homes for sale fell to 109,000 units.

The article quotes Patrick Newport, a U.S. economist for IHS Global Insight, as saying "September’s decline is hard to explain."  According to the article, Newport offered the following possible explanations for the "unexpected" decline in new home sales:

• "One possibility is that inventory has fallen so low that builders do not have enough completed homes on hand, and are losing sales to the market of existing homes."
• "A second possibility is that September's reading was simply an aberration, just like the August drop in existing home sales was an aberration, and that sales will take off in October."
• His final possible explanation is that due to the deadline for the first-time homebuyer tax credit nearing on 11/30/2009, would be new home buyers do not think they will be able to close in time and so these buyers decided not to buy.

I have to say that I do not find this "unexpected" decline in new home sales to be unexpected at all. The fundamentals of the real estate and housing market are poor. Unemployment is over 10%, foreclosures and other distress sales are at record levels, banks are failing in record numbers (in terms of dollar losses). The only things keeping home prices (including new construction) at current levels (i.e. preventing home prices from falling to sustainable levels) is artificial government intervention in the form of:

• The $8,000 home buyer tax credits.
• Expanded FHA and other government backed mortgage loans (see my blog post Real Estate Recovery or More Problems (Short Sales and Foreclosures)?, which shows that "of all the home sales that have occurred in 2009, 59% of all buyers relied on low down payment government financing programs.").
• Extraordinary government purchases of mortgage loans (95%+ of all mortgage loans are purchased by the government owned agencies Fannie Mae, Freddie Mac and Ginnie Mae - see Recent Developments in Mortgage Finance).

With the $8,000 tax credit coming to an end soon (even with the proposed extension it will only last for an additional 8 months), continued unemployment, record foreclosures and a pending pull back in FHA and other government loans due to the record default rates (see my blog post FHA in Deep Trouble: Default Rates Skyrocketing) new home sales should decline.  Only the government nonsensical intervention is fooling buyers into thinking things are OK.

If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing new construction (new single home, new townhouse or new condo), do not be fooled by builder hype and marketing. If you want a great deal on new construction, you will need knowledgeable, aggressive and professional buyer representation. Please contact me, or visit my website Search the Middle Tennessee MLS - Find New Single Homes, New Townhomes and New Condos in Middle TN. I help home buyers in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

On the other hand, if you are a home builder in Middle Tennessee who is in financial trouble due to being unable to pay your mortgage payments, or owe more in mortgage debt than you can sell your newly constructed homes for, or you are already in foreclosure please contact me to discuss selling your new homes via short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your new homes (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need quick sales due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get New Construction Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Moody’s: Homebuilders May Lose $500M in 2010

Moody’s: Homebuilders May Lose $500M in 2010

According to this HousingWire article, Homebuilders May Lose $500m in 2010: Moody’s, US home builders will likely lose a combined $500 million in 2010.

According to the article, "US homebuilders still face risks, despite improvements in home sales and housing starts, and Moody’s Investors Service expects building industry's operating losses to worsen by 8% in 2009. Moody’s vice president and senior credit officer Joe Snider expects homebuilders to continue generating pre-impairment operating losses over the next 12 to 18 months. An increase in foreclosures and weak employment figures will contribute to house prices at their currently low levels, and might cause prices to fall more and for a longer period than currently anticipated."

The article quotes Snider as saying "We expect that the industry’s one relatively bright spot — that is, robust cash-flow generation — will keep fading in the year ahead, as inventory liquidation plays itself out and funds from operations remain negative."

If you live in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN) you have probably seen all the new neighborhoods and the advertisements from the builders promoting all the incentives they are offering to buyers. Please understand that if you are buying a new home today you are likely paying too much. Frequently, you can buy a very similar new, or newer, home that is a foreclosure or short sale for less than the cost of construction and less than you can buy it from the builder. You can use my website to search the Middle TN MLS so that you can find a distressed property, a foreclosure or a short sale in Middle Tennessee.

Could Tighter Loan Underwriting Standards Hurt the Housing Recovery?

According to this RISMEDIA article, Credit Woes to Threaten Housing Recovery?, "Nearly two-thirds of single-family home builders are reporting a severe lack of credit for housing production, threatening the fragile housing recovery before it has time to take hold, according to a new builder survey of acquisition, development and construction (AD&C) financing conducted by the National Association of Home Builders (NAHB)."

The article quotes NAHB Chairman Joe Robson, a home builder from Tulsa OK, as saying "Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans. Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.  There can be no meaningful economic recovery until the flow of credit is restored to housing."  (My thoughts: Since when has housing been a legitimate driver of the economy for any extended period of time?  How can over priced asset prices such as housing create long term jobs?)

According to the article, the most recent NAHB survey of AD&C financing conditions, showed that some 63% of builders thought that the "availability of credit for single-family construction loans worsened in the second quarter of 2009."

The article states that home builders reporting worsening credit conditions cited the following reasons for the decline in lending:

• 80% said that lenders are lowering the allowable loan-to-value ratios.
• 76% reported that lenders are not making new loans."
• "75% stated that lenders are reducing the amount they are willing to lend"
• 62% said that lenders are requiring personal guarantees or collateral not related to the project.

According to the survey "Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better."

The article notes that lenders, as an explanation for the reduced lending activity, have told home builders that banking regulators are forcing them to tighten lending standards.  Federal regulators, on the other hand, say that they have not restricted lenders from making more loans.

The article states that the "NAHB believes that regulators and lenders should provide leeway to residential construction borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance on loans to give builders time to complete and sell their inventory."

I have to say that I have had enough of this nonsense.  We do not need more credit to help a housing market that has imploded as a result of too much credit.  I do have a serious problem with lenders due to their taking of taxpayer bailout monies and their grossly incompetent handling of short sales and foreclosures, but I do not blame them for reducing their loan activities or tightening their credit standards in the face of rising unemployment and increasing loan delinquencies.  It appears that the NAHB is doing nothing but advocating something that will help home builders sell their over priced homes to naive home buyers - all at tax payer expense as these loans go bad and the federal government steps in to continue to bail out the lenders that made these loans when the financially strapped home buyers need to short sell their homes and/or fall into foreclosure.

Therefore, the answer to the blog post title question is "No" for the following 2 reasons.

1. There is no actual housing recovery. Housing prices continue to fall and foreclosures continue to increase.  Where is there is more than average government intervention, such as CA with their $10,000 new construction home purchase tax credit, there has a been a slight bump in prices that will only get worse when that government intervention is stopped.
2. Tighter housing credit will actually the housing market in the long run due to weeding out financially unstable buyers. Long term housing market stability is the most important thing now.

Given the absurdly high levels of new construction still going on and available for purchase in Middle Tennessee (Rutherford County: Murfreesboro TN, Smyrna TN and La Vergne TN) the housing market here will continue to decline for years to come as there will be more builder bankruptcies, short sales and foreclosures in the Middle TN market.

Experts: More Rough Times Ahead for U.S. Economy

According to this RISMEDIA article, More Rough Times Ahead for U.S. Economy, despite Recent Improvements, several prominent experts in real estate and the economy who attended a recent forum at the Nixon Presidential Library said that despite recent signs of improvement more rough times are ahead for the U.S. economy. The event was organized and moderated by real estate analyst and investor Bruce Norris of The Norris Group in Riverside CA. the event included experts from the California Building Industry Association, the National Association of Realtors, the Mortgage Bankers Association, RealtyTrac, The Appraisal Institute and the National Auctioneers Association.

The RISMEDIA article quotes Christopher Thornberg of Beacon Economics regarding increases in durable goods orders, exports and auto sales as saying "You look at the numbers and everything points to the fact that we not only have bottomed, but things seem to be improving. When you think about the problems we’ve been through and what government has done, in many ways, they have, in fact, stabilized the economy. But you know what? They haven’t actually solved the underlying problems in the economy. The second half of 2010 will be very weak. 2011 will be very grim." According to the article, Thornberg cited real estate as a case in point. The article states that while home sales are up in some areas of the country, 6-7% of residential mortgages across the US are now 60 to 90 days delinquent. According to the aritcle, in California 250,000 mortgages are 60 to 90 days late. Thornberg believed that more economic trouble is coming soon due to rising unemployment and additional waves of foreclosures. If you remember my past blog posts I have been saying this for months (i.s. the coming foreclosures of Option ARM's).

The article noted the following thoughts and comments of the forum panelists:

• All of the panelists agreed that the economy will turn the corner in 2-3 years, but several panelists thought that things would get worse before improving.
• John Young, vice president of the California Building Industry Association, noted that new housing construction starts are at their lowest levels since the early 1950s and that new home sales are being hurt by appraisals coming in lower than the contract sale prices.
• Rick Sharga, senior vice president of RealtyTrac, a leading online marketplaces for foreclosures, noted the nation has had 43 consecutive months of foreclosures.  He said "We’re dealing with foreclosure activity that is six times what it would be in a normal market."  He also said that the legal and legislative efforts aimed at helping consumers modify the terms of their loans “merely delay the inevitable" given that modified loan terms will not help people who lose their jobs.  Sharga said he sees another big wave of foreclosures hitting the market next year as a result of rising unemployment rates, which are expected to peak during the first quarter of 2010, and the resetting of adjustable rate mortgages to higher rates.  Sharga also said that the real estate market is being hurt by a "shadow inventory" of 400,000 to 500,000 homes, which have been taken foreclosed and taken back by lenders, but have not been put back on the market for resale.  I have been saying that the number of REO's far exceeds the number being offered for sale for a while now.  When the Option ARM's start to reset this is going to break the proverbial flood gates wide open.

Of course there was the normal refrain of from a former president of the National Association of REALTORS who wants Congress to expand the home purchase tax credit to $15,000 for all home buyers.  Per my previous blog posts I think this is a bad idea because it will artificially inflate home prices resulting in more bubble bursting when the tax credits are finally stopped.

The forum organizer, Bruce Norris, recommended that Congress take the following actions to help the real estate market:

1. "Increase the number of loans made available to well capitalized investors: Expand Fannie and Freddie loan programs from a maximum of 10 loans per investor to an unlimited number of loans for qualified investors."
2. "Make the 203K FHA loan program available to investors: A 203K loan allows a property needing work to be purchased “as is,” but included in the loan amount is money for repairs. The loan funds both the purchase and rehab of the property. Investors need this loan now, but this loan is currently only available to owner occupants. FHA previously made this loan available to investors, but stopped the practice in 1996 when HUD ran out of lender owned, fixer uppers. Banks could solve the vacant house problem by giving investors back the 203K loan program."
3. "Eliminate the 90-day waiting period before a repaired property can be sold to a buyer using an FHA loan: Investors who purchase fixer uppers can often completely repair the property in a matter of weeks. But the current law prohibits investors from reselling the property within 90 days. The assumption is that fraud must be taking place if a property is resold within 90 days. It’s ridiculous to assume that every investor who purchases a property, improves and resells it is committing fraud. All this policy does is increase investors’ costs of purchasing and rehabbing vacant homes.
4. Allow loans to be taken over by credit-qualified new buyers with no down payment. Through this process, which was successfully used in the 1980s, new buyers simply step in and take over the loan payments. The only stipulation is that the loan has to be made current at the close of escrow. The U.S. currently has about one million owners who will not be capable of keeping their homes without a huge discount on the principle balance. Many of these properties have fixed rates at very favorable rates. Allowing willing and capable buyers to come in and take over these loans would help contain the spread of foreclosures across the country.

I agree with Mr. Norris' first 3 points, but I fail to see how allowing delinquent loans to be "taken over by credit-qualified new buyers with no down payment" will help the market when the real problem is that the loan balances exceed property values.

Thornberg, thought that it is "not realistic to assume that our nation’s economic problems will be solved by increased regulation or by presidential action. The economy simply needs some time to heal itself.  I have tremendous faith in the U.S. economy rebounding again in the future.  When we come out of this in two or three years, we’re going to have cheap housing and a weak dollar, which will be good for exports."

I agree with Mr. Thornberg in that cheap housing is good for the economy. The problem is that the Obama Administration is doing so much to artificially prop up housing values.  Why would they do this?  The answer is that the Obama Administration and their Democrat friends are bailing out their Wall Street and banking buddies such as Fannie Mae, Freddie Mac, AIG and Goldman Sachs.  Don't believe me?  Go find out who the largest campaign contribution recipients from Fannie Mae, Freddie Mac and AIG (hint: Barney Frank, Christopher Dodd and Barack Hussein Obama).

In my market in Middle Tennessee (Rutherford Couny TN in particular) I believe that the effect of all this will be worse than average due to higher than average unemployment rates and foreclosures.  Housing prices in Middle Tennessee will continue to fall well into 2012.

When "Good News" Is Really Bad News

According to this RISMedia article, Single-Family Starts and Permits Edge Higher in April, the number of new home starts increased by 2.8% to a seasonally adjusted rate of 368,000 units and the the number of permits for future construction also increased. The article mentions that low mortgage rates, low prices, the federal $8,000 tax credit and additional state specific tax credits were partially responsible for the boost.

I will tell you right now that this is the terrible news. Overbuilding spurred by easy to get loans was a major contributor to the current real estate mess. We do not need more new homes being built, especially if they are fuled by artifically low rates, which will eventually increase significantly, and tax credits. Only rookie buyers or truly marginal buyers would make the decision to buy a home based on a measy $8,000 to $15,000 in tax credits, especially given the fact that taxes are going to increase in order to pay for the "stimulus plan". Therefore, these buyers will have less money than they think after their tax credit is factored in. I predict that these buyers will have a high foreclosure rate and the overall foreclosure rate will contnue to be high. All of this will continue to depress prices in the very areas that were most affected by the real estate decline.