Where Homes Prices Crashed Early, Signs of Rebound & More Homes Get Multiple Bids

Don't classify me as a permabear; I just play one on the web. I just prefer to deal in facts rather than wild eyed, arm flailing punditry. As we have been predicting, and part of our investment themes have swayed to - we expected an increase in house "transactions" as prices plummet. [Mar 28, 2009: Some Real Estate Markets Warming Up] This is very different than a recovery, but the stock market does not discern. Ironically people are bidding up new home builders (who will benefit far into the future from what is happening now) and abandoning title insurers (who would benefit now and in the nearer future) - aye carumba. Somehow an smallish uptick in mortgage rates is devastating for title insurers but good for new homebuilders. Only in the horde trading of the stock market.

Two articles to reflect the NUMBER of transactions INCREASING (again, very different than prices rebounding) and after reading through what the FHA is allowing [May 6: WSJ - FHA Loans: The Next Housing Bust] - this is even less surprising. My contention - even as a "kinda sort bull" on housing is after this initial wave of first time buyers takes advantage of low home prices, and easy government terms we'll have a new stall. Because for all non renters you must sell a home to buy a home... and competing with home foreclosures on price is a massive issue for natural sellers, many of which are now underwater. You will see the shadow inventory (many of which are sellers who wish to sell once prices "rebound") provide a constant overhang for extended periods of time. But that is a very granular look and the stock market is not elegant and precise like that - it likes big flashly simple jock type themes spoken in caveman tongue: Homes Good, Buy Stock!

NYT: Where Home Prices Crashed Early; Signs of Life

• SACRAMENTO — Is this what a bottom looks like? This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety.
• Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.
• Indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year.
• No one in Sacramento is predicting that local housing prices, which have been cut in half from their mid-2005 peak, are going to reclaim much of that ground anytime soon. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said. (how far we've fallen - can you imagine the HGTV show? We've gone from "Flip That House!" to "Sit in That House!")
• (Nationally) The supply of unsold homes was about 10 months, a number that has changed little over the last year and is abnormally high. But first-time buyers were an impressive 53 percent of the market — and that was largely before a first-time buyer’s tax credit of $8,000 became available.
• Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. (key points; although again these are granular thoughts for a simplistic equity market) Sellers, meanwhile, are reluctant to lower their prices, preferring to bide their time. New construction is nearly nonexistent.
• (Sacramento) What drives the market here, then, are all those foreclosures. Two-thirds of the 2,092 existing single-family houses and condominiums sold here in March were bank repossessions, up from 8.5 percent two years ago, according to MDA DataQuick, a real estate research firm. (nationally it's about 50% of home sales that are foreclosures of late)
• When buying is cheaper than renting, markets begin to turn. At the current rate of sales, there is less than three months of inventory in the Sacramento market. In normal times, that would indicate a seller’s market. Except these are not normal times. The unemployment rate in the county is 11.3 percent, the highest in decades. That will prompt more foreclosures all by itself. Furthermore, banks have lifted various processing moratoriums that lowered foreclosures last fall.
  

This last point highlights what I've stated many times, we've had a backwards real estate market - usually real estate is the lagging indicator; it falls mid to late in a recession and into the recovery as people who lose jobs eventually lose their houses. What we've had so far is simply the "bad mortgage" housing bust; the traditional housing bust still is to come - although of course mitigated by a return to easy credit, low down payment loans offered by FHA, along with historical low mortgages offered by Banana Republic Ben Bernanke)

• These two factors yielded a rise in the number of default notices filed in Sacramento County in March to 2,819, a record. Thousands more bank-owned houses are likely to come to market this summer and fall.
• “That will stall any progress toward stability,” said Michael Lyon, chief executive of Lyon Real Estate. “The prospects for a recovery are fool’s gold.”

So essentially as first time buyers (and investors) come in to snap the first wave of foreclosures and drive inventories down - on comes the next wave. The coming waves will have a lot more to do with the recession than simply bad mortgages.

Via USA Today: More Houses Get Multiple Offers

• More homes for sale are attracting multiple offers as buyers pursue lower-price homes and banks low-ball asking prices to attract competing bids on foreclosures. Multiple bids have picked up in recent months in California and other states hit hard by foreclosures and steep price drops, real estate executives say.

Again it is so funny how sign posts that once meant one thing don't signal the same things today - just as in the story above we have almost the exact same phrasing "usually signify ABC, but not true now"

• Multiple bids usually signify a market in which prices are rising and buyers outnumber sellers. That's not true now, given rampant foreclosures, still-falling prices in many regions and low demand for higher-price homes.
• The competition is driven by prices — California's are down 39% from a year ago, CAR says — low mortgage rates and a new federal tax credit of up to $8,000 for some first-time buyers.

Hey, Mr. Lyon has been quoted in this story too!

• He says banks have lured multiple bids by setting below-market prices. Lyon cautions that government steps to curb foreclosures have delayed some. "People are perceiving that they are running out. But there will be more," he says.

We are in year 3 of this disaster of epic magnitude - it won't be as bad as the past 2 years, but we have a long way to go (even with the historic steps of handouts by each branch of government ex judicial) before things get back to any semblance of normal. Even better, with what the FHA is doing now, we'll have a new wave of foreclosures down the road to supplement the current generation.

[Apr 23, 2009: As More Homes Fall Underwater Trapped Americans Cannot Migrate]
Apr 8, 2009: Recession Causes Relatives to Move in Together & Sharp Drop Off in Divorces. Housing Bubble 2.0? (Not)]
[Mar 25, 2008: WSJ - Wave of Foreclosures Drives Prices Lower, Lures Buyers]
[Dec 8, 2007: Analysis - What Should Housing Prices Be Today?]