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Latest News on Housing Market: Not a Surpise August 26, 2009

Posted by John Watch in AccuriZ News, News Feed.
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The latest news on property data and Home Prices should not come as a  surprise and we should not begin celebrating an end to the crisis.  In our article Cyclical, Seasonal and Emotional, we discussed the three critical phases of real estate selling patterns that have attributed to the housing bust.

The latest news and public records indicate that these critical phases are performing to historical levels. That is, the summer seasonal market is showing a correction to the cyclical change that began in 2007.  Now the million dollar question is, will the fall seasonal market (which affects Florida, Arizona and Nevada) continue to show recovery or will the markets pause until the next “Selling Season in 2010?”

Our report: Housing in Crisis (published in March 2009) addressed the broader issue of excess housing.  Again, there is good news on this front. The excess housing is being absorbed at an annualized rate of about 1 million units. Having a glut of 5 million units at the end of 2008, this means we have another three to four years before the overall markets start to recover.

Housing Recovery is the focal point here. We predict that the Northeast will continue to show stability, with modest corrections in local markets from 3% to 5% through the end of 2010.  The Midwest remains strong and will experience similar stability.  In the five biggest areas where excess housing still dictates selling patterns, we are predicting that Arizona will recover sooner than sections of Florida and Vegas.

The latest news on the housing market is not a surpirse. Recovery and Stability are the focal points and we should start to see signs of this in the upcoming months.

No one should be surprised when the next Housing Index comes out in September which will show a further strengthening of the market and continued adjustment in housing values in an upward trend.  Our report Median Sales Price published in March of 2009 indicated that the overall Median Sales Price would move upward to $215,000 to $220,000 by year end.  The current median sale price as reported by the Commerce Department is a $210,000, an increase of over 5% from the low of $201,400 early this year.

 

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Halting Home Construction Key to Recovery, Warren Buffett Confirms July 14, 2009

Posted by John Watch in AccuriZ Reports, News Feed.
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Excerpts from CNBC.COM

Warren Buffett confirms what few analyst have been reporting; home construction spearheaded the recession and halting it is the first step to recovery.

“There is no silver bullet,” Buffett adds. “The original cause of this was the housing bubble… we built a couple million housing units a year… surprise we had too many houses.. you can’t work that off in a day, week or month. The best thing we can do is not to be building a lot of new houses.”

Months ago, the Housing in Crisis report produced by AccuriZ indicated the impact of home construction on the economic crisis.

Public records show that from 2000 to 2008, 15.1 million homes were constructed. When the property data is weighted against natural population growth – even including the influx of illegal immigrants – there was a substantial amount of excess housing. Given the average household size, the population would have had to increase by 40 million since 2000 to absorb the housing. In actuality, it has only increased 25 million, well short of lofty housing expectations. At the end of 2008, 5 million homes were unoccupied. With rising foreclosures and banks holding onto more properties soon to be foreclosed, total absorption of home construction would take over a year.

[“There is no silver bullet,” Buffett adds. “The original cause of this was the housing bubble… we built a couple million housing units a year… surprise we had too many houses.. you can’t work that off in a day, week or month. The best thing we can do is not to be building a lot of new houses.”]

But rising numbers in building permit applications and home construction threaten this statistic. The same process of oversupply that Buffet says initiated the crisis is being permitted to continue. If any significant signs of recovery are to occur, home construction must remain at its natural cycle of 500,000 to 600,000 homes a year until the absoprtion of the excess is completed. Hopefully now that Buffett has reiterated this point, people become aware of the problem that lies ahead. The welfare of an entire population should not be sacrificed for the benefit of a few.

“That’s tough on the homebuilders but that’s the prescription for getting supply and demand back in balance,” Buffett says. 

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Economic Crisis: What Have We Learned? July 13, 2009

Posted by John Watch in News Feed.
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We didn’t learn from history.

It can be argued that the current economic crisis was based on a number or separate but tangible factors.  One argument relates to monetary policy over the past decade as being a key contributor to the downturn.   

As interest rates were lowered by the Federal Reserve, borrowed money became increasingly easier to obtain.  This enabled a broad range of economic growth to occur, one of which was new housing

New housing starts are influenced and regulated by local governments who must issue permits for construction.  The lack of checks and balances from local government to police the growth fueled the rapid growth of development.  Some actually argue that local government was more concerned about increasing tax revenue, then being concerned about over development.   

Source: Census Bureau ; News N Economics

Source: Census Bureau ; News N Economics

In the chart above first reported by News N Economics, the housing bubble is clearly identified as beginning in 2003 continuing to 2006, reaching a climax of over 3.3 million housing starts. As interest rates were lowered after September 11 2001, contractors and developers borrowed without many limitations; the focus being to maintain growth, not stabilize it.  New homeowners were able to borrow without the strict regulatory policies of the past and 4 million renters became owners.

With an analysis of natural population growth statistics from public records and property data, housing starts were severely imbalanced, causing an influx of new construction that did not taper off until 2007.  

So the question remains, did standards get lowered so the excess housing stock could be absorbed?  There is antidotal evidence to support this claim and perhaps the simple answer is an analysis of the current foreclosure market.  The current level of foreclosure is comprised of many of the first time home buyers and mostly in homes built in the past seven years.  

Had this been regulated, would the economic crisis be as bad as it is? If housing construction was controlled and home ownership more tightly regulated, foreclosures, vacancies, distressed mortgages etc. might have been easier to absorb.

Fraud and bad debt were the offsets of a lenient monetary policy, but we believe that if one variable – the boom in housing starts – was controlled significantly, the economic bust would not have been as severe.

The question now is how do we learn from this continuing cycle, and prevent it from occurring once again in future? While interest rates were low at the start of the housing boom, mortgages rates have presently been at record lows. When the excess construction has been absorbed and values have hit bottom, what will be the outcome be?

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Great News for American Taxpayers! But Really… July 10, 2009

Posted by John Watch in Uncategorized.
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Excerpts from HousingWire.com 

In a rare occurrence over last six months, we’ve finally received some good news coming from Washington about the economy. Yesterday, the House Finance Services Committee heard testimony on a bill for possible Troubled Asset Relief Funds (TARP) reinvestments.

HR 3068, or the TARP for Main Street Act of 2009, proposes to reinvest $6.5 billion to the home ownership and housing efforts. Public records show that as of June 30, the US Treasury Department issued $399 billion of the $700 billion TARP funds, which received back $70.1 billion from stock repurchases and $6.7 billion in dividend payments on preferred stock through the Capital Purchase Program.

The proposed $6.5 billion would be distributed as such;

  • $1 billion to build affordable housing
  • $1.5 billion for the US Department of Housing and Urban Development to distribute to state and local government for the redevelopment of abandoned and foreclosed homes
  • $2 billion in emergency mortgage relief  
  • $2 billion to HUD to stabilize multi-family properties that are in default or foreclosure or have recently been foreclosed.

As the initial $399 billion of the TARP funds have been distributed effectively, why is there an additional $1 billion being used to build NEW housing? With an additional $1.5 billion for ‘redevelopment?’ One of the critical factors of the housing bust was, and still is, the housing oversupply. At last year’s end, there was an excess of 5 million homes that needed to be absorbed. Why add on to this already incredibly high number?

Critics of the bill had this to say.

Rep. Spencer Bachus, R-Ala., in a statement on the bill, criticizes the $1.5bn that would go toward the Neighborhood Stabilization Program, which he says could be accessed by the community group ACORN. Bachus, ranking member on the House Financial Services Committee, said the group is “notorious” for its efforts to commit voter fraud and more funds available to the group would undermine the administration’s efforts for transparency and flexibility o the Treasury Department to strengthen the financial system.

“One of the best things we can do to stabilize the credit markets and promote long-term economic growth is to restore fiscal discipline and stop the reckless government spending,” he said. “As institutions begin to pay back their TARP assistance, we need to end the bailouts and return that money to the taxpayers thereby reducing the deficit.”

These arguments surely hold merit. But if they really want to promote economic growth and return money to the taxpayers, some of the $6.5 billion should be allocated towards helping the small business industry, which accounts for 85% of employment. Stimulating the economy should not come with pumping more money into contractors and local and state governments for building and redevelopment, but to the workers and consumers whose dollars they rely on. Up to this point, the TARP funds have been used for these corporate issues, and rightfully so. But some ground level redevelopment needs to be addressed. If even $2 billion were to be given to small business owners to help stimulate their practices, employees could be hired, consumer confidence could get a boost and the economy could be strengthened. An immediate impact could be generated. As the employment rate continues to rise, what good does it do to build more homes? If the foreclosures are rising, what good does it to add on to the supply?

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Causes of the Housing Bust Part I: Excess Growth July 8, 2009

Posted by John Watch in AccuriZ Reports.
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Housing Growth vs. Population Growth

Housing Growth vs. Population Growth

Reported from Housing In Crisis Report

Excess growth in the housing market was a key factor in the economic downturn that we are now trying to recover from, according to the latest market report by AccuriZ. The report, entitiled Housing In Crisis, indicates that a huge surge in home construction since 2000 was not supported by the natural population growth cycle at the same time. This excerpt explains the chart above;

“Household size appears to be fairly stable at 2.7 for the past thirty years. Applying the average household size of 2.7 with the growth in housing units of 15.1, the population would have increased by 40 million since 2000 versus the actual growth of 25 million as reported by the Census Bureau.”

Given the property data, the supply and demand factor of the housing market was severly imbalanced, as there were simply too many homes being built without enough people to fill them. From 2000 to 2008, 15.1 million units were built, based on public records. While this complies with historical trends of housing starts in previous decades, this surge occured within an 8 year span.

“Correlating census estimates with existing occupied housing unit data, one can surmise that the actual number of housing units developed over the past eight years exceeded market demand by 600,000 units per year since 2000. Applying the results of this analysis and considering natural building permit activity, one could conclude that the existing over supply of housing will take no less than two years to be absorbed, possibly longer in areas with extensive over development.”

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