Spring Sales and Other Notes
Here's a graph of home sales so far this year in Billings, compared to last year. (Source is Howard Sumner's blog).
Sales were very weak in April. In fact, there were actually fewer closings in April than in March-- very unusual going into the spring selling season.
Consider the incentives that there are to buy right now-- incredibly low interest rates, and an $8,000 first time homebuyer credit. Even with these, sales are still dropping. This is surprising, and particularly ominous when you consider how much farther sales could drop when these incentives inevitably go away.
And speaking of Sumner, the Big Sky Business Journal printed a Letter to the Editor that is a nice response to Sumner's claim that Billings housing has been a better investment than the stock market since 1968. The letter (whose author reads this blog) has two simple, but effective arguments: 1) The average house size has increased in 40 years, so you can't really compare the 1968 average price to today's average price, and 2) Sumner neglects to include dividends in his math, which greatly increase the value of a stock market investment.
Sumner now has a blog post stating that it's better to be in Billings real estate-- where we're back to 2007 values-- than in the major U.S. cities (back to 2003 values) or Fortune 500 stock (back to 1998 values). No mention about the potential for future declines... And he also has a write-up about how few subprime mortgages Billings had.
By the way, subprime is not the real problem and has never been the problem. While subprime became a big buzzword last fall, subprime troubles were only the first indicators of the massive credit crisis that has swept over us. Alt-A and Prime defaults are heading up fast, and may cause even bigger trouble. I think Billings can see a major downturn even without much subprime influence.
Do you remember last year when Congress passed a series of bills aimed at helping struggling home-debtors? Turns out that they helped embarrassingly few people.. one, to be exact! So what does Congress do now? They decide that the requirements were just too strict, and they're going to try again:
Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government
Risky credit ... backed by the government. Sure, why not? What could go wrong here?
Wow, interesting about the monthly April sales, somehow I missed that. This strongly suggests that the pretty good March was driven by people wanting to claim the $8,000 credit on their '08 taxes. To his credit, Howard has said several times that the big question for this year is if the $8,000 buyers all came at once or if it's a sustained trend. Looks like that question is answered.
It also makes me wonder even more about a "shadow inventory" of people holding off on listing their homes, hoping that things get better. Inventory numbers are only up about 6% as of the end of April, which doesn't make much sense compared to the sales numbers.
On the other hand, I have noticed quite a few new listings showing up on my Realtor.com custom search recently, so maybe we'll see a nice inventory spike in May.
Interesting, but I'm not sure about that Anon#1. The stimulus bill was passed on Feb. 14. The only post-tax-credit purchases that would be counted in March closings would occur Feb. 15 - Feb. 28 (assuming 30 day closing). I would expect a better bump for sales closing in April, which is why the steep drop is so surprising.
Month-over-month drop in sales, in the spring? Whatever the reason, it can't be good.
The painfully low construction numbers may be helping to keep the inventory down. This is what Howard always expected. We'll see as the year goes on.
You're right, that isn't much time. Perhaps first time home buyers who were on the fence jumped as soon as the tax break was in place, whether they could make the tax deadline or not.
An (up to) 8k tax break is pretty good, and Howard's numbers show that the 120k to 180k price range has done much, much better so far this year then any other price range, which is where you'd expect first time buyers to go. (120k-180k down 18%, all others down 40%)
The rest of the year will be interesting indeed, but in the end it all comes down to household income vs home prices, and those ratios still have a way to go before they normalize.
Speaking of month to month data, as the numbers have gotten worse the data sources are drying up, just as I was afraid they might. Marc Dean stopped updating his figures back in January, and Floberg is pretty late on the March numbers, which is too bad because they provide commercial permit data. If it wasn't for Howard we'd be in the dark, yet another reason why non-disclosure sucks.