Wednesday, March 7, 2012

Beige Book: Residential Real Estate

From the Beige Book:
Residential real estate activity increased modestly in most Districts. Boston, Cleveland, Richmond, Atlanta, Kansas City, and Dallas reported growth in home sales, while New York noted steady to slightly softer home sales. Philadelphia reported strong residential real estate activity. In contrast, home sales declined in St. Louis and San Francisco noted that home demand persisted at low levels. Contacts' outlooks on home sales growth were mostly optimistic. Contacts in Boston, Philadelphia, Atlanta, and Dallas expect home sales to rise further. Home prices declined or held steady in many areas. Cleveland and Atlanta reported little movement in house prices, while contacts in Boston, New York, Philadelphia, Richmond, Chicago, and Kansas City reported some declines. Single-family residential construction was weak in Chicago and declined in St. Louis; Cleveland noted that the year-end uptick seen in construction has abated somewhat, and Minneapolis noted increased single-family building permits. In contrast, Boston, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco reported increased multifamily construction activity.
Let's look at the charts, all of which are from Calculated Risk.  Let's start with the new home market, which is the smaller of the two.

 New home sales are at very low levels.  However, notice they have clearly bottomed out.  In addition, they've bottomed at historically low levels, as shown by the following, longer term chart:

 In short, there is no place to go from here but up.  However, when that will be is a mystery.

The months of supply shows that current supply is at a historically appropriate level.

Let's turn to the existing home market.

Existing home sales -- which were very distorted by the home buyer tax credit -- have actually been remarkably steady over the last year or so.  More importantly, sales are in an upswing, although that's actually a relative term.  I wouldn't call the chart encouraging just yet, but it's certainly not discouraging.

The inventory of total homes is now getting hack in line with historical levels in absolute numbers.  However,

inventory is still high from the "months of available supply" perspective.

The above statistics indicate the housing market is far closer to equilibrium than before.  The new home market is actually looking pretty good, while the existing home market has a bit of room to move before we see a bottom.

Now, let's turn to prices:

Boy -- this is a great graph from CR.  Real house prices less CPI (without its housing component).  This shows that prices are in a downward track still.  However, they area approaching far more normal levels.

The new home market has bottomed and is waiting for a rebound.  The existing home market is looking OK, but not great.  And, both markets are are at far better overall inventory levels.  Home prices (adjusted for inflation) show we still have a ways to go on prices.