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2010-07-08 18:32:40

Get Ready for a Bumpy Summer of Real Estate Numbers

What a dismal couple of weeks of economic news.
First, we get the May existing home sales report released on June 22nd. The report contained a surprise to the downside, with sales falling 2.2% from the prior month. The surprise here was that these were closed sales from May - when the homebuyer tax credits were still in effect (many of these sales were under contract before April 30, the first deadline for the homebuyer tax credits, and the original deadline for closing these sales was not until June 30). Since these were mainly sales that occurred with the effect of the home-buyer tax credit, they should have been boosted by the government incentive.
A day later, we find out that new home sales in May fell through the floor (literally, setting a new record low in data going back to 1963), falling 32.7% from April levels.  Everybody expected new sales to fall off post-tax credit, but the magnitude was still impressive.
Next, we get the May pending home sales report released last week, in which we find that pending sales are also down 30% month-over-month. Again, not surprising directionally but noteworthy in sheer magnitude (last month, we said to “expect to see pending home sales dry up significantly in the May pending home sales report”).
To compound the bad news, last Friday we get new unemployment numbers and find that the economy shed 125,000 jobs in June, that the private-sector only created 83,000 new jobs in the month, and that the unemployment rate dropped from 9.7% to 9.5% only by virtue of the fact that 652,000 Americans gave up trying to find a job – not the best reason behind better unemployment numbers.
While we feel a bit like we’re piling on, alas, today is the typical day of the month when we release our latest monthly data and we’re reporting that the Zillow Home Value Index in May fell 3.8% from year-ago levels and fell 0.4% from April levels. Sorry. Or congratulations if you’re not yet in the housing market, as affordability just got better for you. Given a current homeownership rate of 67.1%, there are likely more sorries to go around than congratulations. See Figure 1 for the annualized and monthly changes in home values at the national level.

Out of the 126 metros tracked by Zillow this month, 77 saw monthly declines in values, 37 saw monthly increases, and 12 were flat sequentially. Ninety-seven markets experienced yearly declines in values, 17 saw yearly increases, and 12 were flat on a year-over-year basis. Some of the big metros seeing annualized increases in home values included Los Angeles, Washington D.C., San Francisco, San Diego, Denver and Boston. Some of the metros experiencing the largest monthly declines in home values were Detroit, Las Vegas, Orlando, Miami, Tampa and Phoenix.  See the table below for real estate performance in the top metro markets.  See and download all data here.
So, what do we make of all this? Honestly, the May existing home sales figures are the most curious to me and the latest unemployment numbers are the most alarming. The continuing decline in home values has been expected and is what we’ve been saying is and will be happening until later this year.
The existing home sales figure is curious because it could signal slackening demand ahead of the expiration of the tax credit. Typically, we’d expect demand to increase right up to the end of the incentive which, in the case of closed sales, would have been until the end of June (that final deadline was extended last week). So, the May decline could indicate either some difficulty closing homes that were under contract or, more worrisome, that we’ve exhausted the number of buyers who could be incented to shift their buying decisions forward in time in order to take advantage of the tax credit.
If the former, then the extension of the closing deadline to the end of September takes care of the issue.  If the latter, then buyer sentiment turning more dour could be the culprit and that wouldn’t bode well for the post-tax credit home sale numbers which we already expect to be significantly down judging by the 30%+ decline in pending and new sales in May.
The weak unemployment numbers released Friday are the most alarming because they suggest that what was expected to be jobless recovery figuratively could turn out to be one literally. Continued malaise in the job market is a drag on the housing market as it keeps household formation lower and people don’t want to leverage themselves with mortgage debt when their job status is uncertain.

June Price Reductions
Snapping a string of two consecutive months of decreasing price reductions, more home sellers reduced their asking price in June.
As of the end of June, more than one-fourth (26.3 percent) of all listings on Zillow had at least one price reduction. That was an increase from the 23.6 percent of listings that had a price reduction as of the end of May. Price reductions peaked last September, when nearly one-third (32.6 percent) of listings on Zillow had at least one price reduction. The largest percentages of price reductions were in the Midwest with the Omaha and Minneapolis-St. Paul metros leading the way with 36.8 and 36.7 percent of home sellers reducing prices, respectively.
The amount of the reduction also increased in June, with the national median price reduction at 6.3 percent compared with 6.2 percent in May. The biggest price reductions were in Michigan, California and Florida. Metros within those states made up 14 of the top 15 metros with the biggest price reductions and included the Detroit metro (10.6%), the Miami-Ft. Lauderdale metro (9.4%) and the Orlando Metro (9.1%).
Click here for a list of price reductions for all 200 metros.


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