Mixed Signals in Housing Data

Another mixed bag of housing data was released over the past week starting with last Thursday’s report from the National Association of Realtors that showed an unexpectedly drop in existing home sales. NAR reported that sales of existing homes in August fell by 2.7% form the prior month. This broke a four month trend of consecutive increases but still reflected a 3.4% increase form the same month a year ago. The report caught many economists off guard as extremely low interest rates, low prices and the government’s $8,000 tax credit were expected by most to boost sales for the month.

The Commerce Department reported on Friday that new home sales rose in August but only by a modest .7%. Even more disappointing is the fact that August new home sales were off 3.4% from a year earlier. Still, the slight increase for the month marked the fifth consecutive month of increases in the number of new homes sold. Mike Larson, an analyst with Weiss Research, Inc. said, “Price cuts and dramatic cutbacks in home construction are clearing out inventory in a big way.” “We now have the fewest number of new homes for sale since November of 1992,” he added.

Mortgage rates are still at eight month lows with the benchmark thirty-year fixed-rate flirting with 5.00%. Government rates, which usually lag behind conventional rates, are beginning to follow the downward trend with most FHA, VA and Rural Development thirty-year programs at or below 5.25%. Jumbo rates, rates for loans in excess of $417,000, are still in the high 6% range as that market remains highly illiiquid. I have been saying for some time that the run-up we have seen in the stock market this year has been irrational as concete evidence of an economic rebound has so far been lacking. The bond market, at least, agrees with me as demand for the safety of bonds remains high keeping interest rates low.

Housing Market Bottoms Out

Mortgage rates eased slightly this week as the bond market was reassured by comments form Chinese officials who indicated they still had a taste for US Treasury debt and that the dollar would remain their primary foreign currency reserve. Thirty year mortgage rates settled to just below 5.50% to 5.375% as the yield on the ten year Treasury fell back to 3.5% after pushing 4% two weeks ago. Fifteen year mortgage rates were even more attractive with the no point coupon at 4.75%. With inflation in check and the stock market sputtering I don’t see any significant upward pressure on rates in the short-run. There will be several economic reports over the next week that could create some daily volatility as investors attempt to determine whether the economy is turning the corner or still stuck in a rut.

A report released on Tuesday showed that we may have finally reached the bottom of the housing market nationally. The S&P Case Shiller Index of home prices, though down 18.1% from the same month a year ago, showed only a .6% drop from March to April. This is nearly three quarters lower than the previous month’s decline of 2.2%. The Case Shiller index has shown a monthly decline for every month since July of 2006. Yale Economist and co-creator of the index, Robert Shiller, called it, ” a striking improvement in the rate of home price decline.” The good news was tempered, however, by another report that showed more prime mortgage loans became delinquent in the latest quarter and a report on consumer confidence showed a surprise dip. It will be interesting to see in this week’s report from the National Association of Realtors on pending home sales whether more evidence of a housing recovery can be seen.

Can we start buying again yet?

“The answer is a qualified yes,” stated a November issue of Fortune Magazine in an Investing column titled Time to Jump In?

The author then goes on to explain that now is a great time to get into, or get back in, the stock market. “Stocks aren’t exactly cheap, but for the first time in years investors can expect annual gains that should eventually approach double digits.”

Well, cheap is always a relative term. Stocks ARE cheap right now compared to where they were 12 months ago. With the 12 month high at just under 14,000, the DOW has dropped 41% since this time last year. I just bought a new pair of Sperry’s this weekend at a 40% off sale. I saved 35 bucks! That’s dinner and a matinee.

This is not to say that in the next 6 to 12 to 18 months that those purchasing stocks now will not lose money, because there is actually a good likelyhood that they will. However, the longer the term, the smaller the risk. The advantage to buying now is the tremendous long term gain potential. The disadvantage to NOT buying now is the risk of missing the bottom and losing an opportunity at potential long term gain. We may be in a recession, but historically, the market comes flying out of downturns. A study performed this year by Ned Davis Research found after studying 10 recessions after WWII, the average market return one year after the market low point was around 32%.

If the last 10 years have been on average bad, does that mean that the next 10 years will be bad also? Most likely no. In fact, odds are overwhelmingly good they will yield much better than average returns.

The interesting observation to be made right now is that the quite opportune time to purchase stocks now is actually parallel with the real estate market. Now is the time to be buying real estate. Like stocks, real estate is likely to continue to fall, but the bottom is near. Real estate, historically, has always been a good long term hold. Ownership is not without heartburn, but if you can’t stomach seeing your property values come down a little over the course of 10 years, maybe investing in real estate isn’t for you.

In many cases, prices have come down to 2003 levels. The average sold price on Panama City Beach during the third quarter 2008 was 10% less than what it was during the same period in 2006. On an individual basis, some prices have come down as much as 20 to 40%. Right now there are deals everywhere with motivated sellers willing to do just about anything to sell their property. In many cases, velocity sales has actually increased from last year, indicating the entrance of buyers into the market.

The best way to acheive healty returns in any investment is buying low. You know the saying – you make money when you buy, not when you sell. Now is the time to be making money.

Real Estate Market Conditions on Panama City Beach

August 2008 Report – Panama City Beach

Slightly over 5% of the total Beach inventory for Detached Single Family Homes sold in August, 2008. If all things hold steady, there is slightly over 19 months of inventory on the market. As of Sept 08, 2008 there were 780 DSF listed in the Bay County Association of REALTORS® MLS System for Panama City Beach. Out of the 41 homes that sold in August, 12 were foreclosures, 1 was a short sale and the rest were typical sales. The foreclosure rate of sales for detached single-family homes on the Beach is slightly under 30% of all the sales for August 2008. Out of the 41 homes, 1 Gulf front home sold, 1 Bay front home sold, and 4 canal front homes sold. The average price per square foot was $173.48, including all 41 homes, however if we nixed the top and bottom 5 the average price per square foot leveled off at $143. The average days on the market for all 41 homes were 236. As of September 08 there are 43 DSF under contract (about 5.5%) and 780 listed.

Slightly over 3% of the total Beach inventory for condominiums sold in August 2008. This indicates a 33 month inventory of condominiums on the Beach and the statistic is basically the same for Gulf front condo’s. As of September 08 there were 1620 total condominium listings, 1106 of which are Gulf front. Out of the 53 total condominiums that sold in August 2008 only 9 were foreclosures or slightly under 17%. If Gulf front condos were considered alone, all 37 sold for an average of $285.72 per square foot. If all condo’s are taken into consideration, the average price per square foot slips to $246.20. There is no significant difference of average days on the market between Gulf front and non-Gulf front, both being about 166 days. As of September 08 there are 83 condos under contract out of 1620, or slightly over 5%, and out of that there are 43 Gulf front out of 1106 listed, a bit less than 4%.

About 6.5% of the total Beach inventory for Multi Family Homes sold in August 2008, leaving approximately 15 months of inventory listed. There are 62 active listings, four of which sold in August. Of the four, one was a foreclosure (25%). Two of the four units were very old and in disrepair. This should be considered when acknowledging the average price per square foot at $74.32. There is only 1 unit currently under contract and the average days on market is 134.

About 3.5% of Attached Family Homes sold in August for a total of 10 sales out of 279 listings. There were no foreclosures involved and the average days on the market was nearly a year– 341 days. The average price per square foot was $138.80. There are currently 19 units under contract.

Sold	Listed	Avg DOM	Avg $/sf	Mos of Invtry	Absbptn Rt	Forclosure	Undr Cntrct
DSF – August 2008
41	780	236	143	19	5%	30%	43
Condo – August 2008 (All)
53	1620	166	246	33	3%	17%	33
Condo – August 2008 (Gulf Front)
37	1106	166	286	33	3%	0	43
Multi-Family – Beach
4	62	134	74.32	15	6.5%	25%	1
Attached Single Family – Beach
10	279	341	138.8	28.5	3.5%	0	19

There are some things to keep in mind. The average days on market for a property to sell is based upon a selling price that is competitive with the average sale price per square foot of the units that have sold. One must even fine tune it further because the average sales price per square foot that sold ought to be more tailor fit for a particular property based on age, condition, and location.

Buyers should note that there are far more seller- sold deals moving in this market than there are foreclosures. It would be foolish to simply look at foreclosures as de facto, the best deal of all. Many sellers are equally or perhaps more motivated than many of the banks that own property.

All of us need to realize that there is simply far too much inventory on the market and both REALTORS® and sellers would do the market a favor if they could pull inventory that is simply overpriced. The only way value will build again is when the absorption rate improves and inventory decreases. If you’re overpriced now you have very little chance of moving your property. In this market, one should sell only if one must, it is not a wise time to sell if it is discretionary. Buyers should be strongly encouraged by these market conditions to buy.

Guessing the bottom of the real estate market is like guessing the bottom of the stock market. We have been in a three year price correction. Our airport is well underway, we have had major improvements, businesses have come to our area, our property taxes have been lowered, Lord willing we will escape hurricane season with little damage, our election cycle will be soon over, the dollar is beginning to strengthen once again, even insurance rates have been eased in most cases, interest rates are near historical lows and the war is seeming a bit more victorious than defeatist in the most recent months.

All these positives must weigh in against the challenges that we have faced both locally and nationally and we all hope, with good reason, that in fairly short order the momentum will shift and affect our market positively. (The statistics provided above were all true as of September 08, 2008 and were the product of the Bay County Association of REALTORS® MLS System.)

Scott Seidler GRI
Broker-Associate
Prudential Shimmering Sands Realty
850-774-5007
ScottAndSonjaRealEstate.com