The next three months will be interesting for home prices. The impact of the homebuyers’ tax credit is fading from the market and so are the buyers. We must realize that in September, October and November of last year buyers were rushing to buy a home before the expiration of the original tax credit (November 30). There is no such impetus this year.

As evidence, this week’s Mortgage Bankers’ Association Weekly Application Survey showed that mortgage purchase applications were:

… well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago.

At the same time, the Wall Street Journal reported:

Housing inventories rose in many U.S. cities for the eighth straight month in August in a sign of the continued headwinds facing a soft housing market … Inventories nationally remain at their highest levels since November 2008.

We’re back to the theory of supply and demand. Demand is softening as the supply of homes for sale is escalating.

Bottom Line

There will be tremendous downward pressure on prices throughout the rest of 2010 and going into 2011. You should sell as soon as possible if you are thinking of selling in that time frame.

A message from Steve Harney:

The short term fixes used to bolster the real estate market (the purchase of mortgage-backed-securities and homebuyer tax credits) proved to be just that: short term fixes. Everyone now seems to feel that the only true solutions to the challenges in housing are

• the creation of jobs and
• the increase in consumer confidence jobs will create.

I totally concur. However, if tomorrow the administration was to announce the greatest jobs program ever attempted and promised to implement that program immediately, it would take 12-18 months for it to have any noticeable impact on housing demand. That begs the question:

What if you want (or need) to sell in the next 6 months?

A new jobs program cannot help you. A dramatic increase in consumer confidence won’t occur in time. The only way for you to guarantee your home will sell and you and your family will get to move on with your lives is to price your home at a number at which it will sell. We know that is difficult to accept.

Back in 2006, you might have been able to sell it for perhaps 20-30% more than you can sell it for today. In five-to-ten years from now, you may be able to sell it for substantially more. This is not 2006 however. This is not some undetermined time in the future when the housing market has fully recovered. This is 2010 and this year we must list our property at a compelling price if we want it sold.

This may seem like too strong a dose of ‘tough love’. I just want to make sure that if you truly want/need to sell your home in the near future you realize that the best time is now. You may be losing money compared to the 2006 price. But, by waiting, you only continue to lose value.

Every major credible source is saying that prices will fall in most parts of the country over the next six months. Estimates range anywhere from 5-20%. If you own a $200,000 home and prices drop an additional 10%, you will lose $384.62 every week!!

($200,000 x 10% = $20,000. If you divide the $20,000 by 52 weeks it equals $384.62).  

Bottom Line

Sit with your family and a local real estate professional. Determine the actual value of your home. Price it at that number, sell it and move on to where you and your family really want to be.

MacroMarkets has assembled a very distinguished panel of over 100 economists, investment strategists, and housing market analysts who are surveyed every month regarding their 5-year expectations for future home prices in the U.S. The report is the Home Price Expectations Survey.

Their purpose for this undertaking?

We are hopeful that this survey, and our panelists, will help to stimulate constructive debate among consumers, institutions and policy makers regarding expected future changes in home prices – and their behavioral, policy, and risk management implications.

We believe each of their goals is important. We also want to relay the findings of the surveys to you in order for you to see what the experts are saying and also look at the trends that are developing in their beliefs.

What the experts are saying:

The August survey reported that only 21% of those surveyed predict “positive growth in prices nation-wide for 2010”. The report also revealed that the group, as a whole, predicts that home prices will have a cumulative 8.43% appreciation by the fourth quarter of 2014.

What trends are developing:

The report shows an increase in concern about the housing recovery. The survey reports that 79% of the economists and analysts surveyed are expecting home prices to decline this year. That number is up from 40% in May.

For the third consecutive month, the consensus from the experts indicates weakened overall confidence in the U.S. housing recovery … (with) average expected cumulative price appreciation through 2014 falling almost one-third since our inaugural survey just three months ago …

The evolution of the panel toward more conservative projections of appreciation for the next five years can be seen in their adjustment of that cumulative mean appreciation over the last four reports. Here is their percentage projection of appreciation for the 4th quarter of 2014 (compared to the 4th quarter of 2009).

• May’s report called for a five year cumulative appreciation of 12.43%.
• June’s report called for a five year cumulative appreciation of 10.46%.
• July’s report called for a five year cumulative appreciation of 9.46%.
• Augusts’ report called for a five year cumulative appreciation of 8.43%.

Bottom Line:

The leading housing industry experts are becoming less optimistic about a  recovery. Waiting for prices to come back before selling? That could be a rather long wait.

You may believe that selling your home will be impossible after all the news you have heard recently.  You may feel powerless to the process. What could YOU possibly do to turn this housing market around? There is no doubt that today’s real estate market is extremely difficult to navigate. However, we want you to know that thousands of homes sold yesterday, thousands will sell today and thousands will sell each and every day from now until the end of the year.

It is totally within your power to guarantee that your house will sell even in the current market.

How you ask? Let’s look at the simplicity of the famous Serenity Prayer and apply it to selling a home in today’s real estate market.

“Grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”

Accept the things you cannot change

The two main reasons that the housing market has slowed is:

1. the current unemployment situation
2. what unemployment and a struggling economy has done to consumer confidence

As an individual homeowner there is no way for you to impact either of those two situations. The best think-tanks in the country are struggling to discover solutions.

Have the courage to change the things you can

There is not a vacuum of buyers in the market. There is a vacuum of homes a buyer in today’s market will purchase. Let us explain: could you sell your home today for $1? … $1,000 … $10,000? Of course you could. There are plenty of buyers in the market for a home they consider priced correctly. You have to decide what the correct price is for your home if you truly want to sell. If you want your house sold you must list it at a price a buyer will pay for it. Not a buyer from 2006 but today’s buyer who has plenty of homes from which to choose.  

It will take courage to sit with a real estate professional and honestly decipher the true value of your home. If you want to sell, you must have that courage.

The wisdom to know the difference

We all realize that the economic situation will take some time to correct. If we want to wait for prices to return to 2006 levels, we will probably have to wait for 5-7 years.

Look at the reason you decided to sell in the first place and decide whether the extra money you would get from the sale is worth that wait. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

This is where your wisdom must kick in. You already know the answers to the questions we just asked. You have the power to take back control of the situation by pricing your home to guarantee it sells. The time has come for you and your family to move on and start living the life you desire. That is what is truly important.

CNBC report 9/2: “Pending sales of previously owned U.S. homes rose unexpectedly in July … suggesting a tax credit-related housing market decline was close to bottoming.”

ORIGINAL POST

The new housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew

I want to start by saying that Armageddon is not upon us. Was NAR’s Existing Home Sales Report tough to read? Yes. Were there any surprises in the report? Just one: the fact that prices have remained stable. And that was good news.

All the panic and gut-wrenching revolves around two numbers:

1. The lack of sales in July
2. The months’ supply of inventory now available

Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.

Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!

In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.

As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.

What does this mean to you?

You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.

We want to begin by saying there were absolutely no surprises in this month’s National Association of Realtors Existing Home Sales Report. Experts were calling for a dramatic fall off in volume and a substantial increase in month’s supply of inventory. Everyone now realizes that the tax credit actually pulled more demand forward than it created. The inventory of unsold homes is increasing as the shadow inventory of distressed properties is beginning to be released by the banks.

The report just confirmed what we already knew. Yet, it was still difficult to read.

What the report said:

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, dropped 27.2 percent to a seasonally adjusted annual rate of 3.83 million units in July from a downwardly revised 5.26 million in June, and are 25.5 percent below the 5.14 million-unit level in July 2009. Sales are at the lowest level since the total existing-home sales series launched in 1999, and single family sales – accounting for the bulk of transactions – are at the lowest level since May of 1995 … Existing single-family home sales fell in all 20 areas from a year ago.

The national median existing-home price for all housing types was $182,600 in July, up 0.7 percent from a year ago. Distressed home sales are unchanged from June, accounting for 32 percent of transactions in July; they were 31 percent in July 2009.

Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.

What the experts are saying:

Mark Zandi, chief economist at Moody’s Analytics:

“We probably, almost assuredly, will experience more house price declines. I think that would qualify as a double dip.”

Calculated Risk:

“Usually July is the peak month for inventory. This level of inventory is especially bad news because the reported inventory is already historically very high, and the 12.5 months of supply in July is far above normal. The months-of-supply will probably decline in August as sales rebound slightly and some sellers take their homes off the market, but I expect double digit months-of-supply for some time – and that will be a really bad sign for house prices.

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

This is a key reason why I expect house prices to fall further later this year as measured by the Case-Shiller and CoreLogic repeat sales house price indexes, although I don’t expect huge declines like in 2008. My expectation is further price declines of 5% to 10% on the repeat sales indexes.”

Real Trends:

“It is our belief that total sales volume in the second half of 2010 will be down versus the second half of 2009 (in many markets, we believe that decline will be sharp enough so that full-year 2010 will be less than full-year 2009) … Although these figures aren’t likely to fill anyone’s heart with joy, they should not be a huge surprise to anyone.  There’s no doubt that the next 6 to possibly 18 months will not be for the faint of heart but those that will fare best are those that enter this with eyes wide open and plan accordingly.”

The Bottom Line

All real estate is local. Contact a professional agent that is seen as an expert in your area. But remember, in most regions, demand is down and supply is up. There will continue to be downward pressure on home prices.

We attempt to explain the current real estate market both simply and effectively. We either create or search for great visuals or graphs that do just that. We have been trying to help our readers realize that real estate is just like any other industry: pricing will be determined by the theory of ‘supply and demand’. Months’ supply of inventory is the  industry’s gage of supply and demand.

Calculated Risk has constructed a graph which depicts the impact the months’ supply of housing inventory has on home prices. We want to thank them for creating the graph and also for allowing us to share it with our readers.

Here is the graph and Calculated Risk’s explanation:

“This graph shows months of supply and the annualized change in the Case-Shiller Composite 20 house price index. Below 6 months of supply (blue line) house prices are typically rising (black line).

Above 6 or 7 months of supply, house prices are usually falling. This isn’t perfect – it is just a guideline. Over the last year, there have been many programs aimed at supporting house prices, and house prices increased slightly even with higher than normal supply. However those programs have mostly ended.

The dashed red line is the estimate for months of supply in July. Through the roof! And I expect we will see double-digit months-of-supply for a number of months.

This is a key reason why I expect house prices to fall further later this year.”

As we can see, the months’ supply of inventory has a major impact on home prices. On Wednesday, we will post on tomorrow’s release of the National Association of Realtors ‘Existing Home Sales Report’. That report will give us the actual months’ supply of inventory for July.

We have been discussing home prices in this blog for over a year. The principle of ‘supply and demand’ has been our rallying cry for the entire duration. Pricing of any item is determined by the number of items for sale in ratio to the number of purchasers looking to buy that item.

Here is an industry guideline we have used:

• 1-4 months inventory means it is a sellers’ market and we can expect appreciation.
• 5-6 months inventory means it is a balanced market with prices following inflation.
• 7+ months inventory means it is a buyers’ market and we can expect depreciation.

It now appears that the National Association of Realtors (NAR) is letting their membership know that ‘supply and demand’ will determine house prices for the foreseeable future. In two separate reports released on Wednesday, NAR addressed the issue of both an increasing supply of homes for sale and a decreasing demand.

In Economic Commentary: Varying Signs, Lawrence Yun, NAR’s chief economist, speaks of the anticipated demand for housing for the rest of the year:

“One thing is clear, however: slow business spending will mean slow economic expansion and a slow pace of job creation. The frustration of traveling at 40 mph on a wide open 70 mph freeway will be with us for the foreseeable future if businesses continue to hold back. The unemployment rate could also remain stuck at a stubbornly high level — 9.5 to 10 percent. It also means that home sales in the second half of this year will be markedly slower than in the first half of 2010.” (emphasis added)

Jed Smith, Managing Director, Quantitative Research for NAR in a report titled The Housing Markets: Supply, Demand, and Current Issues addresses increased supply:

“There has also been concern over a potential shadow inventory of distressed properties: as of the first quarter of 2010 over 6.5 million homes were in foreclosure or had overdue mortgage payments. Possibly as much as 75 percent of the shadow inventory will ultimately be sold as distressed. However, given the ongoing time delays for problem resolution it appears that distressed properties will enter the market at approximately the current or a slightly increased rate for the next few years. Foreclosures are a major negative market influence in terms of price, consumer confidence, and expectations; however, a tsunami of shadow inventory appears unlikely.”

There are 4.875 million distressed properties that will come to market (75% of 6.5 million). Last year, according to NAR, there were just over 5 million homes sold. If not a tsunami, there will at least be some very stormy weather as we hope for a recovery in housing. Smith goes on to say:

“A number of homeowners who have deferred listing their homes due to market conditions may also now reenter the market, resulting in increased home inventories as the economy recovers. Once the employment numbers improve, pent-up demand may help to increase sales. In the short run, however, we may actually see additional inventory on the market as a result of listings by deferred sellers.”

More and more homeowners that had held off putting their homes up for sale in hopes of a housing recovery, now realize that a recovery may not occur for some time. They are now placing their homes on the market.

What does that mean for prices?

The report by Smith puts it all into perspective:

“An increase in the inventory of unsold homes indicates that there is an excess supply relative to demand…Prices tend to rise as supply falls. During the first part of 2010 the months’ supply of inventory decreased from earlier highs—accompanied by stabilizing prices. In June, month’s supply increased to 8.9 months from the previous 8.3 months. If the increase proves to be a temporary adjustment due to pent-up listing of homes, then prices should continue to stabilize, particularly if employment increases. If inventory supply continues to increase without adequate job increases, the housing market will be subject to additional pricing pressures.”

NAR releases their Existing Homes Sales Report next Tuesday. We’ll report on the months’ supply of inventory shown in that report.

We are building a home for real estate information here at the KCM Blog. Our job is to accurately reflect what is taking place in the residential housing market in this country. The entire team takes this job very seriously. With the market evolving so rapidly, it has become a daunting task.

We looked at what certain experts were predicting about a possible double dip in housing yesterday. Today, we have compiled the thoughts of five industry players to help show where the experts think home prices are headed for the rest of this year and going into 2011.

Three of the major housing price indexes:

Altos Research:

“The market, right now, is a veritable case study of the law of supply and demand. Right now, there’s a whole lot of supply, but very, very little demand. The buyers that drove a flurry of activity during the spring have left a deafening silence in their wake … Increases in inventory nationwide show that demand simply isn’t there. As the market continues to correct itself, and as we head into the seasonally weak fall and winter months, expect more increases in inventory, and likely deepening declines in asking prices.”

Radar Logic:

“It is our belief that housing prices will decrease in the autumn, perhaps precipitously, and that may cause a second dip in the U.S. economy … And home buyers are not demonstrating any perceivable confidence that we have found the bottom, yet. As we begin to see the data for the fall, we expect it will be soft, that volumes and prices will move lower … If we are right, the odds of a double dip in the economy may well be more than one in four.”

Mark Fleming, chief economist for CoreLogic:

“Home price volatility and collateral risk remain very high. The stabilization phase and policy intervention since the spring of 2009 has run its course. Prices are expected to further moderately decline as the economy remains weak through the fall.”

Two other housing experts:

Ethan Harris, coordinator of global economics at Bank of America Merrill Lynch:

“I don’t think the housing market will double-dip. What we’re seeing in housing is a bottoming out at very low levels of activity. So, we expect a very long U-shaped recovery in housing in the next year or two. We expect home prices to be down slightly across the country. We expect construction to be essentially flat, and we expect continued very high levels of home foreclosures. Right now the housing market is in a standoff with very cheap financing and very low prices, encouraging buyers, but a flood of foreclosures offsetting that demand. A true recovery in the housing market isn’t likely until 2012, when we see substantial improvement in the foreclosure picture.”

Michael Carliner, research affiliate at the Harvard University Joint Center for Housing Studies:

“Although existing home sales data, based on closings, haven’t yet shown the effect of the end of the tax credit, new home sales and contracts on existing homes have both fallen to record lows following the end of the tax credits.

The reality is that the real estate market won’t fully recover until builders and consumers start believing once again that housing is a relatively safe investment with reasonable returns, and that will take some time.”

We hope that information like this enables you to more easily understand your options in today’s volatile housing market.

Here at the KCM Blog we attempt to bring clarity to a very confusing real estate market. There is news breaking every day and one report seems to contradict another. Today, we are going to take all the news available and put into a single graph. How do we propose to do that?

By cheating a little.

MacroMarkets is a company founded by Professor Robert Shiller of Case-Shiller fame. The company has assembled a distinguished panel of over 100 economists, investment strategists, and housing market analysts who they survey every month regarding the experts’ 5-year expectations for future home prices in the United States.

We decided that this group of experts does an extraordinary amount of research on the housing industry and that the culmination of their expectations would give a true picture of where the real estate market truly is, and will be, over the next five years.

We decided to graph this on a timeline so you can see how the ‘experts’ believe the market will perform. Below is a graph of the mean, cumulative home prices that the experts expect over the next five years.

We can see that the experts are calling for prices to decline for the next year and then take another year to regain that loss and have values equal today’s prices. They then see prices steadily appreciating over the following several years.

What does this mean to you?

If you are selling, the price you can expect to receive for your house will be lower over the next two years than it is today.

If you buy today, you could see a cumulative appreciation of almost 10% in five years.