Housing Long-Term Trend Positive; Disappointing Monthly Reading Confirms Volatility

in Investing,Market News

  • Sales of existing single-family homes tumbled in January, further illustrating the choppy nature of the economic recovery. A revival in housing remains essential to sustaining an economic recovery, but weakness in the job market and shaky consumer confidence continue to complicate prospects for improvement. Last month, transaction velocity fell at a seasonally adjusted 7.2 percent annual rate from December to its lowest level since last June. Velocity rose 11 percent year over year, however, marking the seventh consecutive monthly gain, led by a 38 percent jump in sales of existing condos. The median price of $171,700 was unchanged from one year earlier. The condo sector was one of the bright spots in the report, as months supply declined from 9.4 to 9.0; a year ago, 13.4 months supply of condos were for sale.
  • The decline in velocity occurred despite the renewal and expansion of a credit for first-time homebuyers. These buyers accounted for 40 percent of sales in January, down from 43 percent in the preceding month. Foul weather may have played a part in the drop in velocity, as sales were down 11 percent in the Northeast. By comparison, sales declined only 5.2 percent in the West, where seasonal fluctuations related to weather are not as severe. Sales activity will pick up in the spring as the weather improves and buyers act to take advantage of the first-time homebuyer credit, which expires at the end of April. Expiration of the credit, however, along with government plans to stop buying mortgage bonds next month, may generate headwinds in the housing sector.
  • The median price of an existing single-family residence or condo has fallen 25 percent since reaching its peak at the end of 2005 and will remain at a low level due to sales of distressed properties. Last month, distressed assets accounted for 38 percent of all sales, up from 32 percent in December. Currently, nearly 7.8 million U.S. households are behind on payments or in the foreclosure process, and approximately 3.0 million to 3.5 million homes may go into foreclosure this year. If another round of foreclosures hits the market, downward pressure on prices may intensify.
  • Impact on Commercial Real Estate

  • In the near term, the apartment market may face increased pressure from the single-family housing sector due to continuing sales of distressed properties. Distress has encouraged the return of investors to the single-family housing market, as these buyers represented 17 percent of all buyers in January, up from 15 percent the month before, and all-cash buyers rose from 21 percent to 25 percent. Both of these factors indicate investors are playing an increasing role in the housing market, and apartment owners could face additional competition as these homes are employed as rentals.
  • Conditions in the housing sector will continue to affect retail property fundamentals. While home improvement chains Lowes and Home Depot recently reported solid results for the last quarter, both retailers offered cautious near-term outlooks. Lowes and Home Depot anchor many shopping centers and drive traffic to adjacent tenants, but a continuation of recent home sales trends may diminish results for the retailers and place pressure on other tenants.
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This entry was written by marcusmillichap, posted on February 27, 2010 at 12:29 am, filed under Research and tagged . Bookmark the permalink. Follow any comments here with the RSS feed for this post. Trackbacks are closed, but you can post a comment.

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