Real estate consultant John Burns from Irvine’s latest monthly report card on the U.S. housing market gives out a “D-plus” grade for December. It’s the first grade drop since July’s data when Burns marked down the market from “C” to “C-minus” just as the credit crunch was bubbling to the surface. Burns writes in his report, among other things:
We are most likely in a very mild recession right now. Unemployment spiked this month, and consumer confidence has fallen to 88.6, which is well below the long-term average of 98.6. The Fed now knows that it should have dropped rates further last year. We’ll see just how far the Fed moves at their next meeting on January 30.
I peaked through my cache of old Burns newsletters and saw this comment in his report on December 2005 data, which got the U.S. market a “B-minus” …
The housing market continues to show signs of slowing, but very little evidence of the “bursting bubble” that has been predicted for more than 3 years by some prognosticators. One sign of slowing is the level of unsold new homes.
There are now nearly 200,000 more unsold new homes under construction than there were just five years ago. Rapidly rising sales have masked the surge in construction. Most analysts focus on the months of new home supply … Since hitting a low of 3.5 months of supply in the summer of 2003, this number has gradually increased to its current value of 4.9 months, its highest value since December 1996.
While 4.9 months of supply is not concerning because the figure remains so low by historical standards, the months of supply calculation is held down by the high level of sales. If sales slow even a little, the months of supply figure will surge, as it did in 1990. The total number of unsold new homes is shown in the purple line below. There were 503,000 unsold new homes in November 2005, compared with 305,000 in November 2000.
Hundreds of thousands of unsold new homes:
US Housing Gets a D Grade:
D students who never took an Econ class will buy in 2008.
Can’t wait to see the data in December 2008 = F Grade
4.9 months???
I’d like to hear from an economist who is farmiar with the cycles of the historical American economic trends. I heard about 10-11 months ago, that our current cycle is headed towards not just a recession, but a depression wich would be reviewed similar to the one after the world war. I also understand that our economy is now influenced and effected by the global economy more than ever before… but if the largest mortgage institutions continue to fail- and the RE issue continues to escelate, perhaps the big D is somewhat likely…
These numbers are either national or for areas far below the price ranges of Socal so pay them no attention. These national articles rarely have any meaning in OC. I don’t know why they’re even included in the OC register. I guess just to make all you OC home owners jealous and to make you want to move out of county. Months supply here in OC is anywhere between 14 and 28-months depending on whose stats you want to use. I’m sure it will go up come late spring as more homes hit the market with less qualified buyers due to ever-tightening loan guidelines. Values, they are a commminnnn down…
Jimmy,
Jon was showing a comment from 2005. I think he was trying to show the large contrast in reporting in just 2 short years.
From the real ( i.e. CDM Jimmy )
In this article, the author references how, in 2005, some had warned of a housing bubble for three years, which puts that date in mid 2002. Can you imagine if, in mid 2002, decided against purchasing a 1200 square foot CDM home in the 200 or 300 block because of the housing crash prediction? In mid 2002, you could get one of those for under 1M. Wow. One is listed in 200 block of Poinsettea right now for 2.8M. 1200 square foot teardown.
The bubble remains inflated as prices still haven’t really come down that much from their ridiculous highs between 2003 - 2006 in the orange county market. This thing is still only a correction in that prices aren’t even off by 10% yet. If this is indeed a bear market then prices need to come down 20% from their highs, just to confirm the bear (buyers) housing market. After that we could continue to decline for 5 to 7 more years (and maybe longer since this particular bubble was so large). Bottom line is this market, in orange county, is in the very early stages of coming down . We may see a bottom in 2015. We still have WAY to much interest as well. You got to see this thing go from the front page to the back page. People got to lose all hope and more importanty, all interest. The way people buy homes (mortgages) and the loans they use are returning back to normal traditional loans (i.e. 15, 30 year and adjustable). Long gone are the neg ammortization, interest only, ridiculous 40 and 50 year loans and so on. This is actually really good. Pretty soon regular people in the cummunity, such as policemen, teachers, nurses, doctors, lawyers (well maybe not lawyers) but soon all these people will be able to buy homes again too without needing 300k for a down payment…
Dave
No one knew diddly squat in 2005, and no one knows diddly squat now. People say what’s popular, so they don’t lose their jobs. Everyone has jumped on the real estate is garbage bandwagon. Wait until stocks drop and people will flood the market. The current view is complete nonsense. And just so you know, no one cares about national reference points.
Jimmy: In 2002, the percentage of all home loans made in the OC that were ARMs was only around 35%-40%. There was still plenty of upside. Anyone with the simple knowledge of the relationship between lending and demand (easier to buy), and subsequently home values, would have seen that one coming. Even Greenspan encouraged the use of ARMs back then.
In 2006, that percentage was around 80%.
Bored,
The stock market has dropped back to Jan. 2007 levels. I haven’t heard anything about people flooding into real estate. If the bottom falls out of the stock market then CASH will be king not real estate or any other asset.
“Wait until stocks drop and people will flood the market. The current view is complete nonsense.”
Bored, what about the market tanking makes you think people will flood the market buying property? I am serious - what is your *logic* for making that statement? Please, if you have some rational basis upon which to base your notion that the stock market *tanking* will cause people to BUY real-estate, I really would like to hear it.
I think the major reason this recession will be much worse and much longer then recessions of that past is because of the enormous volume of unqualified buyers that are involved in this recession.
In past recessions lending rules were very much intact with 90%- 100% of buyers legitimately qualified.
In this recession anarchy was spread over the entire housing industry, virtually unchecked by any overseeing authority for the last five years. This has created an unprecedented amount of un-payable debt, affecting the entire world. These dollar figures dwarf past sector recessions.
The vast amount of debt can be seen in the fact that home sales were breaking record after record every year while affordability was hitting all time lows, creating the ingredients for a perfect storm.
Some of us shorted our homes and others even sold their homes not because we wanted too, but only to distance ourselves from the heavy loses that investors and unqualified borrowers have created in this housing bubble.
Bill:
Well-written post.
Jimmy,
Interesting example you chose — on Pointsettia in CDM.
Zip realty shows it listed 6 days ago at $2,850,000.
Zillow.com shows it valued at $3,060,000 about 3 months ago.
Zillow.com shows it valued today at $2,531,000.
A 17% DROP in value or a mere $519,000 loss in a couple three months. No big deal.
You ought to snap this one up. I believe I’ll get some popcorn and watch awhile.
Yow…..checked a bit more…..up and down the street, both sides. Poinsettia in CDM.
Seems a drop of $500,000 to OVER a million is the norm. All of this is very recent.
Housing bubble on the radar in 2002 ?
It would be different if it was NOT a bubble, BUT it clearly is.
Just like on the way up we were all surprised at how high prices got, and then made up every story in the book to justify it.
Now were primed for just as big a surprise on the downside.
There is still plenty of equity left, the question is how many (like Bill said) want to cash out while they still can. Looking at inventories, market time and asking prices it looks like a hell of a lot of people want out.
This spring/summer should be fun, if builders and banks start dumping the competition could get fierce.
Buyers at this point are praying to god that they missed the boat and are moving with extreme caution.
Since real estate is a national market for investors it is important to say that Real Estate is still the Number 1 investment in America and there isn’t a close second. However, all markts do not represent the same opportunity at the same time. As investors we continue to find and invest in growth markets where the appreciation is forcasted at 10% a year over the next 5 years. Buying new homes at under $100. per square feet and then renting them to qualified tenants remain the number one investment in America. Knowing what property to buy and where is just as important as knowing which stock to buy and when for stock investors. However, stock investors do not get the many advantages of real estate such as leverage, tax benefits and an Inflation hedge. The best website to examine this real estate investment conclusion is http://www.TenPercentDown.com .
It is the same here in the South. The housing downturn is negatively impacting property sales in second home communities in Florida. This is also slowing sales in NC mountain resorts that depend on Florida buyers.
Still the downturn in prices and building of inventories is starting to attract second home buyers from Florida looking for cool temperatures in our mountains. Also the dramatic decline in the dollar combined with weakness in American real estate markets are beginning to attract bargain hunting European investors.
Ron Holland, Broker/Realtor with Wolf’s Crossing Realty. See http://www.ronaldholland.com Ron markets resale mountain and ski resort properties in NC in Wolf Laurel and The Preserve at Wolf Laurel.