Housing: Stuck and Staying Stuck
Original Post Date: September 24, 2010
By: Nick Timiraos and Sara Murray
For months, home buyers and sellers have been stuck in a curious stalemate, with sellers reluctant to lower prices and buyers staying on the sidelines.
New data suggest the standoff eased slightly last month, as sales of existing, or previously owned, homes rose 7.6% from July’s extremely low levels, according to figures released Thursday by the National Association of Realtors.
But while the housing market may have halted a slide that began in April after federal home-buyer tax credits expired, it still faces a long recovery, and buyers remain scarce. The August figures were the lowest for any month since 1997 except for July.
And while the number of unsold homes fell 0.6% in August to 3.98 million, it would still take 11.6 months at the current sales pace to clear the inventory. That’s the second highest figure since the realtors’ group began tracking the data in 1999, behind July’s 12.5 months.
“The only way to sell a home in this environment is to drop the price,” said John Burns, a housing consultant based in Irvine, Calif.
The housing numbers have prompted a debate among economists about how much further prices need to fall to resuscitate sales. Home prices are likely to fall another 2.2% this year, according to the consensus estimate of 114 economists and housing analysts surveyed this month by MacroMarkets LLC, a provider of hedging products.
The picture varies from region to region. Home prices in several Florida and Nevada markets are likely to fall at least another 5%, while parts of Texas and Oklahoma could post modest gains over the next year, said Eric Fox, vice president of statistical and economic modeling at Veros, a real-estate analytics firm in Santa Ana, Calif.
Nationally, prices in July fell by 0.5% on a seasonally adjusted basis following a 1.2% decline in June, according to figures this week from the Federal Housing Finance Agency. The S&P/Case-Shiller home-price index issues its report on July prices next week.
A house for sale in Hammond, La. Existing-home sales rose in August but the inventory of 3.98 million unsold homes would still take almost a year to clear at the current sales pace.
Consequently, sellers face a difficult decision: get off the market or cut the price. Sonja Brisson decided to get out. After listing her home for three months, she began interviewing prospective renters on Tuesday. Ms. Brisson, who is moving to live with her fiancé, will lose money renting her Seattle town home, but said it was better than competing with distressed sales going for 30% less than what she paid for her property.
Renting the home is “just a total crapshoot,” she said. “Nobody saw this coming, and nobody can see the end of it.”
Weak demand in the housing market comes amid other signs that the economy is improving, but at a painfully slow pace. An index of leading economic indicators, which aims to help predict where the economy is headed, rose 0.3% in August after increasing 0.1% in July, the Conference Board said Thursday.
Much of the lingering weakness in demand is linked to sluggish improvement in the job market. Some 465,000 people filed new claims for jobless benefits last week, up 12,000 from the week before, the Labor Department said Thursday.
Without jobs, families are still relying on tactics they employed during the recession—such as households doubling up—to make ends meet. That’s pulling down demand for housing and, in turn, prices and construction.
“As those jobs get created, people who have been doubling up will start moving out of those homes and demand will pick up,” said Patrick Newport, an IHS Global Insight economist. “As that happens—it’s going to happen very slowly—the glut will start coming down.”
The weak economy is just one reason why buyer psychology remains depressed. The housing market also faces a “shadow inventory” of four to five million potential foreclosures that have not yet come to market but could put pressure on prices if they do.
“Why do you rush out today to buy something when you think there are going to be millions more for sale soon,” said Michael Feder, chief executive of real-estate data firm Radar Logic Inc. The question, he said, is “how much lower do prices have to go to attract the buyers?”
Even investors, who have been active over the past year buying homes at what they believed were big discounts, are pulling back. “They think everything will be cheaper next year,” said Mr. Burns.
As prices fall, more sellers could find themselves in Patrick Minton’s shoes. He’s already dropped the price on his Seattle home to $400,000, which is less than what he owes. He’ll already have to pay transaction costs out of pocket.
Jobless Claims Increase
The home hasn’t received any offers, and he isn’t willing to cut the price any more unless his bank agrees to a short sale. Mr. Minton, a 42-year-old software developer, listed his home in July after getting divorced and said he’d stay if the bank would let him refinance at current rates. “It’s not the bank’s fault that the house isn’t worth what I paid for it, but unforeseen things have forced me into this position,” said
While 11 million borrowers are underwater, or owe more than their homes are worth, another 2.5 million will join them if prices decline just another 5%, according to CoreLogic Inc., a real-estate analytics firm.
“They’re between a rock and a hard place,” said Glenn Kelman, chief executive of Redfin Corp., a real-estate brokerage that operates in nine states. “They’d capitulate if the bank would let them.”
Leading Indicators Rise
That is suffocating the market because those sellers are also would-be buyers. “Right now, we have investors and first-timers in control of the market, and until that changes, we will never be on the mend,” said Mark Hanson, an independent housing analyst in Menlo Park, Calif.
The housing market will eventually need more buyers like Robert Gifford, who spent six months with his wife scouring their Beacon Hill neighborhood in southeast Seattle before pulling the trigger on a sale in July.
When it came time to sell their smaller home this month, they didn’t dawdle. They cut the listing price by around 10% to $334,000, and it quickly went to contract.
“We didn’t want to become an involuntary landlord,” said the 31-year-old engineer.