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Housing Update - March 2011

Housing Update - March 2011

Once again, signals from the housing market were mixed in January. As Lawrence Yun, the chief economist at the National Association of Realtors (NAR), said: “While home buyers over the past two years have been exceptionally successful with historically low default rates, there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system. We should not expect the recovery to be in a straight upward path—it will zig-zag at times.”

Building permits fell 10.4 percent in January, down to an annualized rate of 562,000 from December’s level of 627,000 (Table 1). Housing starts gained ground, however, to an annualized rate of 596,000. This is 14.6 percent above December’s level and a year-over-year decrease of 2.6 percent. Completions fell in January, down 9.5 percent to an annualized rate of 566,000. Year-over-year, the number of completions fell 22.7 percent.

new residential construction - january 2010 to january 2011

The Builder’s Confidence Index (Table 1) remained unchanged at 16 for the fourth straight month in February. Regionally, both the Northeast and the South posted gains. The Midwest and the West posted losses. An index number above 50 indicates the market is good.

Sales of new single family homes (Table 2) were 12.6 percent below December’s annualized rate and 18.6 percent below January 2010’s rate. At the current sales rate of 284,000 (annualized), 7.9 months of inventory are sitting on the market. That figure is nearly 13 percent below December’s inventory level and just under the 8.0 months sitting on the market in January 2010.

housing statistics at a glance, january 2010 to january 2011

The Pending Home Sales Index (Table 2) fell 2.8 percent in January to 88.9, less than industry experts had predicted. The index is just 1.5 percent below the 90.3 level of January 2010 when the homebuyer tax credits were in place.

Sales of existing homes (Table 2) increased again in January, up 2.7 percent to an annualized rate of 5.36 million homes. Months of inventory improved as well, down 7.3 percent to 7.6 months.

Home prices fell across the board, however. The Standard & Poor’s Case-Shiller Home Price Index declined by 3.9 percent in 4Q2010. The National Index was down 4.1 percent year over year, the lowest annual growth rate since 4Q2009 when prices were falling at an annual rate of 8.6 percent. Median prices for existing homes were down 5.9 percent from December, and new home median prices fell 5.6 percent in January. NAR President Ron Phipps said that unusual market forces have been dampening the median prices: “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward. Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

This last point seems to be confirmed by Fannie Mae’s National Housing Survey. According to the survey, 78 percent of respondents believe housing prices will hold steady or increase over the next year. Only 73 percent responded positively to this question in January 2010. In other good news, the number of people who say they have considered defaulting on their mortgages dropped 8 points to 31 percent. Those who say they have seriously considered defaulting declined 6 points to 19 percent.

After a spike in the first week of February, interest rates on 30-year mortgages have been dropping (Table 3). In the last full week of the month, rates were once again below 5 percent.