Diana Olick, CNBC Housing Expert
Every morning when we look for new content for this blog the first place I turn to is Diana Olick. Why? Simple, she delivers the housing data from all perspectives and isn’t afraid to tell the truth. Here is her latest blog post about the critical housing numbers being released this week..
The last week of every month is always the most data-rich, with new and existing home sale reports, price reports from S&P Case Shiller and the FHFA government price index. This month will be particularly interesting, since the jambalaya will include the quarterly delinquency survey from the Mortgage Bankers Association this Thursday.
The street is predicting existing home sales to increase, based largely on the sales surge of distressed properties. No question, the bottom feeders are back in the game, as are first time home buyers.
We are hearing from our thousands of realtors that its not JUST first timers that are buying,……its ‘investors’ as well. I have to tell you, that makes me very very nervous. What will those ‘investors’ do if the prices of homes continues to drop? How many of these ‘investors’ were planning on flipping the house? If history tells us anything its that most investors will walk from their ‘investment homes’ the second they realize the profit potential is gone. Las Vegas anyone?
But these sales are not the type of sales necessary for meaningful recovery in housing. Don’t get me wrong, we need to unload the foreclosure inventory, but without real “organic” sales, that is move-up home buyers and sellers, there is no way to put a bottom on home prices.
Yep, she is spot on. The housing recovery has to start from the least expensive homes and work its way up. The first time buyer is buying the existing home of the move up buyer etc. The biggest segment of any market is the move-up buyer. And in this market where equity is being wiped out its the move up buyer who is suffering the most. For this market to ever return to anything resembling a balance there must be more agents educated on how to successfully list and sell short sales. www.motorcityshortsale.com
I know there is a common perception that foreclosures and distressed sales are really only happening in the big boom-to-bust states, i.e. California, Florida, Nevada and Arizona. California makes up roughly 10 percent of the U.S. population and very roughly ten percent of the nation’s total housing units.
In April, California single family home sales made up 12.8 percent of total U.S. single family home sales. So, while slightly higher, it’s not as if California sales are wildly out of whack from what normal demographics would suggest.
That said, with jumbo loans still a lot tougher and more expensive to obtain, and buyer incentives really favoring the lower-priced starter homes, my concern lies in sales above the median home price (and remember that’s half the nation’s housing market). The quarterly delinquency survey looks back to Q1 of this year, so not the most timely, but that’s when we really started to see job losses surge.
While there’s obviously going to be a lag time between when a homeowner loses his/her job and when they get into trouble on their mortgage, I think we’re really going to see the meaningful impact of job losses in this report, especially on prime, non-exotic loans. These are the homes that the bottom feeders and the first time buyers are still priced out of.
What does this mean? Simple, housing above the FHA loan limits will be experiencing the largest percentage drops in values. Happening because 1) They can’t re-fi because they have no or too little equity 2) New lender standards that won’t re-fi in areas where there are too many foreclosures…(even when the sellers have equity!) 3) They can’t find buyers because the move-up buyers who would be the luxury homes natural buyer can’t sell their home. 4) Consumer (hate that term) trends are changing away from the McMansions.
So before anyone starts calling a bottom to this housing market, if only in sales and not prices, keep an eye on the numbers this week. Foreclosures are the key, and if this new breed of distressed loans starts to grow in size, we may be looking at another bump in the road to recovery.
