U.S. Home Sales Drop In March
There is a lot of press out there about the national housing market. This article below is from Forbes. Austin has slowed down with respect to number of sales, but prices keep rising in the desirable areas. I cringe when I see local newspaper article headlines “Austin Home Sales Cooling” because that’s a misleading thing to say about the Austin real estate market. I’m going to write an article about what the “number of homes sold” means and what it doesn’t mean in the next couple of days.
U.S. Home Sales Drop In March
Forbes.com – Matthew Kirdahy, 04.24.07
America’s housing market may have hit bottom, but it’s in no rush to climb out of the hole in which it has found itself.
On Tuesday, the National Association of Realtors reported existing home sales for March fell sharply by 8.4%, to 6.12 million units. That was significantly below the Wall Street consensus estimate of a decline to 6.45 million units, down from February’s 6.69 million. The drop was the largest since January 1989.
Investors took the numbers badly, slamming housing stocks. New-home sales, which reflect how the construction companies are doing, were expected to rise to 890,000 in March from 848,000 in February, when the numbers are reported on Wednesday. But with existing home sales weaker than expected, the risk is that the consensus for new units will be too optimistic as well.
Centex Homes was the most notable loser, falling 2.9%, or $1.36, to $44.44 in morning trading. Hovnanian Enterprises shares declined 2.6%, or 64 cents, to $24.31, while KB Home stock lost 1.9%, or 86 cents, to $43.40.
The kneejerk reaction may be too pessimistic. Home sales had gained in four of the five prior months, and the Realtors group blamed the sharp March decline on the last gasp of Old Man Winter — with a little help from the subprime mortgage debacle.
Being real estate agents, however, they found some signs of hope. The group’s chief economist, David Lereah, said in a news release that the decline was “masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers.”
“It’s too early to measure a significant impact from tighter lending standards, which should moderately dampen activity, but we’re still looking for existing-home sales to gradually improve during the last half of 2007.”
The group said the national median existing-home price for all housing types was $217,000 in March, 0.3% below last year’s $217,600.
Ken Mayland, who runs Clearview Economics, said that was a good sign. “Care must be exercised in using these figures, as they can reflect mix changes as opposed to fundamental home values. But this does NOT look like a market whose bottom is falling out. In fact, it looks like we may be getting close to a bottom, which I expect to be shaped like a hockey stick, not V-shaped.”
That would mark a fairly soft landing for the housing industry, which soared as interest rates fell in the early years of this decade. As prices rose, loans became easier to find, fueled by unjudicious lending into the subprime market. Borrowers who were not particularly creditworthy were able to get loans, often with two-year teaser rates that are not beginning to rise to levels that make the loans unaffordable.
As long as the market was rising, borrowers were able to either sell their properties for profits or refinance, but with prices now weak in many markets, defaults are rising. Homeowners who find they cannot pay their mortgages can no longer take larger loans based on the appreciation of their properties — there isn’t any — and with prices actually falling they may not be able to sell their houses profitably. No wonder there are motivated sellers.
At the end of March, there were 3.75 million existing homes available for sale, but that was down 1.6% from February, another sign that the market may be at a bottom.