New Home Prices on the Rise, Inventories Shrink

June 24th, 2011

The median sales price of new homes rose to $222,600 in May, a 2.6 percent increase from April, and the first increase to new-homes’ median sales price since December of last year, the Commerce Department reported Thursday. New homes are 30 percent higher than the median sales price of existing, resale homes, which is double the normal markup, analysts say.

Foreclosures and short sales–which are selling, on average, at a 20 percent discount–continue to hamper the new-home market, making it difficult for builders to compete against the ultra low prices.

While the prices of new homes were on the rise, inventories of new homes continued to shrink, with inventories falling to its lowest level on record (166,000 homes). Economists noted that at the May sales pace, it would take 6.2 months to clear the supply of homes off the market.

Overall, fewer people purchased new homes in May as the new-home sector continues to face one of its worst years, the Commerce Department reported. New-home sals dropped 2.1 percent in May to a seasonally adjusted annual rate of 319,000 homes. That pace remains far below the 700,000 homes a year that economists view as healthy for the new-home sector.

Regionally, sales of new homes were mixed. For example, in the Northeast, sales of new homes dropped nearly 27 percent and 3.5 percent in the West. However, new home sales increased 2.4 percent in the South but remained flat in the Midwest compared to April.

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“No Double Dip” According to Chapman Study

Orange County’s economic recovery is indeed slowing, but fears of another recession or “double dip are unfounded, according to economists at Chapman University.

The highly anticipated midyear economic update, presented by the A. Gary Anderson Center for Economic Research at Chapman University, last week confirmed that both the regional and national economies have been hit by a series of factors that have combined to put the brakes on the weak, but steady recovery over the past 18 months. Soaring gas prices, the Japanese earthquake and the end of government stimulus spending, as well as the federal budget stalemates, have impacted manufacturing output and chilled consumer confidence – and therefore spending – since January.

However, Chapman President James Doti is still predicting that the recovery is “downshifting, not reversing itself.” He also said this is not entirely unexpected when rebounding from a recession, particularly one as deep and unprecedented as the most recent downturn.

The wild card in the recovery picture, is housing prices, which were down 4.3 percent for the first three months of this year after slight gains in 2010. Falling home prices have a direct and negative impact on personal wealth and generally cause consumers to curb or stop spending on durable goods altogether.  And then this triggers a domino effect that hurts retail and manufacturing – resulting in a very negative cycle. The other significant concern with declining home prices is the risk of more foreclosures and ultimately more stress and troubles for the nation’s banks.

Although affordability has rarely been better than it is today we are still faced with a lot of mixed signals and concerns on the housing front.  And even though the foreclosure rate has peaked, it may take another three years before the unprecedented foreclosure chapter in this recession is finally over. As many as 3 million more properties are at risk nationally and, ultimately, must be refinanced or sold before we reach normal foreclosure levels in a healthy economy.

Chapman economists predict that housing prices in the county and California will show a 4 to 4.5 percent decline in 2011 and virtually no appreciation in 2012.

In terms of gas prices, another major drag on the recovery since January, Chapman predicts the price per gallon will remain steady between $3 and $4 through the year, barring any unexpected oil supply disruption.

On the all-important jobs front, most industry sectors will continue to show positive growth through 2012. The fastest growing jobs will be in the professional and business services, leisure and hospitality, and education and healthcare. Doti forecast that Orange County will have a net job gain of 20,000 or 1.5 percent by the end of this year and about 30,000 jobs or a 2.2 growth in 2012, roughly the same as California. He further characterized this level of job growth as positive and added that it will improve personal income and ultimately consumer spending.

Why it is Time to Buy

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor’s Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer’s market: There were about 15 million vacant homes in the U.S. last year – some 3.1 million more than normal.

Such conditions might not last long. Moody’s Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn’t likely to get much worse. Meanwhile, demographic indicators such as “household formation”—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound. The short-term outlook isn’t encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.  But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes – a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn’t battered by foreclosures, you may be close to a bottom already.

Please visit www.RajQsar.com for all your real estate needs in Orange County.

10 Cities With the Highest-Priced Listings

Daily Real Estate News  | April 28, 2011

10 Cities With the Highest-Priced Listings
Last month, the national median list price was $199,500, down 0.25 percent for the year, according toRealtor.com housing data of 146 markets. But in San Francisco, the median list price is more than three times that amount.

The following is a list of the cities that had the highest median list prices in March 2011, based on Realtor.com housing data.

1. San Francisco
Median list price: $639,000
Down 8.45 percent for the year
Median days on the market: 63

2. Santa Barbara-Santa Maria-Lompoc, Calif.
Median list price: $559,000
Down 19.57 percent year-over-year
Median days on the market: 117

3. San Jose, Calif.
Median list price: $470,000
Down 5.05 percent year-over-year
Median days on the market: 71

4. Orange County, Calif.
Median list price: $450,000
Down 5.05 percent year-over-year
Median days on the market: 100

5. Honolulu
Median list price: $444,000
Down 1.11 percent year-over-year
Median days on the market: 112

6. Santa Fe, New Mexico
Median list price: $435,000
Up 4.82 percent year-over-year
Median days on the market: 288

7. Ventura, Calif.
Median list price: $420,000
Down 6.67 percent year-over-year
Median days on the market: 93

8. New York
Median list price: $389,000
Down 2.51 percent year-over-year
Median days on the market: 146

9. Naples, Fla.
Median list price: $389,000
Up 2.40 percent year-over-year
Median days on the market: 225

10. Boulder-Longmont, Colo.
Median list price: $380,000
Up 2.73 percent year-over-year
Median days on the market: 114
To search for Million Dollar Listings just go to www.RajQsar.com/Search


Source: REALTOR® Magazine online (April 28, 2011)