September 2008

NATIONAL NEWS

Decline in home sales stabilizing

Home sales in the U.S. decreased from 2005 through 2007, but have been stable in 2008. (Click here to see Graph Sales-US).  Other data indicates that sales may be increasing:

The Pending Home Sales Index fell 3.2% in July after rising 5.8% in May. Overly stringent criteria imposed by Fannie Mae and Freddie Mac in the past month may have held back contract signings.  Source: National Assoc. of Realtors 9/9/08.

Existing sales were up 3.1% in July, the highest pace since February, and are projected to rise 6.9% in 2009.  Source: Bloomberg 8/25/08 & Nat. Assoc. of Realtors 9/9/08.

Sales of new homes rose by 2.4% in July.  Source: Commerce Dept. 8/25/08.

Some of you may feel that the increase in pending contracts, existing home and new home sales is just a seasonal effect.  However, a median estimate of 75 economists in a Bloomberg survey forecast a decrease in home sales rather than an increase.

The areas whose markets had the greatest decline are showing improvement:

Southern California saw home sales jump 13.8% in July, the first year over year increase since 2005.

Single-family existing home sales rose in Florida for the first time in more than two years.  While only a slight increase, it could suggest stabilization.

Phoenix saw a 17% increase in existing home sales compared with the previous July.

BUYERS

Jim Kramer, of the Mad Money Blog, who in the past has encouraged people not to buy, is now saying, "I am now telling you that between now and the next six months you have to buy a house."  Source: Mad Money Blog 7/23/08.  Housing affordability, the Recovery Act of 2008 and the bottoming of sales have come together to provide a unique purchasing opportunity.

Housing Affordability

Nationally, 55% of homes sold from April through June were affordable to families earning the U.S. median income of $61,500, according to a quarterly report released Tuesday by the National Association of Home Builders (NAHB).  That's up from 53.8% in the first quarter of 2008, and the most affordable home prices have been since the second quarter of 2004.

Housing and Economic Recovery Act of 2008

New Homebuyer Tax Credit – For qualifying home purchases between April 11, 2008, and July 1, 2009, the Act provides eligible first-time homebuyers a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7500.  A taxpayer is considered a first-time homebuyer if he (or spouse) had no ownership interest in a principal residence during the 3 year period before the purchase of the home to which the credit applies.

VA Loans – The VA is raising ceilings on its no-down payment home loans from the current $417,000 to as much as $729,000.  VA home loans are available for veterans to purchase or construct single-family homes and to purchase condominiums or cooperative apartments.

Federal Housing Administration (FHA) Reform - This increases permanent FHA loan limits to the greater of $271,050 or 115% of local area median home price, capped at $625,500.  The down payment requirement on FHA loans will go from 3% up to 3.5%.  The new loan limits will be effective on 12/31/08.

FHA Foreclosure Rescue – This develops a refinance program for homebuyers with problematic sub-prime loans.  Lenders who participate will write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of the appraised value.  Borrowers will have to share 50% of all future appreciation with FHA.  The loan limit is $550,440 nationwide.  This program is effective on Oct. 1, 2008.

Mortgage rates dropped in September to the lowest level since February 14^th following the announcement of the government take over of Fannie Mae & Freddie Mac on September 7^th.  Source: Star News 9/19/08.

SELLERS

The S & P Case-Shiller Home Price index now shows that one-half of the cities tracked had a price increase from May to June, 2008, but all 20 had a year over year decline. (Click here to see One-Half of Cities Table).  By looking at the map of Four-Quarter Price Change by State (Click here for map), you can see that in 30 out of 50 states, prices went up during the period of second quarter 2007 to second quarter 2008.  Only three states had prices falling by over 10%, but the national average was -1.7%.

However, these small increases in house prices do not indicate that it is time for sellers to increase their prices.  Look at the table of the Percent Change in House Prices by the U.S. Census Divisions (Click here to view the table).  Most regions are still showing depreciation.  (Buyers, take note of the appreciation you would have had over the last 20 years.)

Though the inventory is stabilizing, pricing is forecast to continue its decline, as predicted by the following economists:

Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are "nowhere near the bottom".  Source: Bloomberg.com 7/1/08.

Meredith Whitney, an Oppenheimer analyst told CNBC, "I think it's going to be well worse than a 33% drop in home prices. (They are now about 20% down.) Source: CNBC.com 8/6/08.

John Burns, President of John Burns Real Estate Consulting, estimates that by 2010, the most stable markets will reach equilibrium and by 2011, the national market will move into better balance.  Overall, he believes that it will take until 2014 for it to be business as usual.  Source: Business Week 8/18/08.

Historically, during housing busts, existing home prices fall for 5-7 years – so I'd expect to start looking for the bottom in the bubble areas in 2010 to 2012 or so.  Source: Calculated Risk.com 8/12/08.

For the sellers, here are some recommendations:

"When cutting the price, take a big bite, not a bunch of nibbles."  Source: Washington Post.com 8/24/08.

"If prices in your area are generally down 20% from where they were at the bubble peak in 2005, then price your house 25-30% below its peak bubble value. Source: Wall Street Journal 7/14/08.

"Set an asking price 10% below what homes like yours have been selling for.  If your market is really frozen and you need to drop the price, make one large cut.  No baby steps."  Source: Money Magazine 5/12/08.

Foreclosures

Foreclosures will continue to keep prices flat or in decline, but not collapse the market.  Source: Washington Post.com 8/26/08.

A recent report from Barclays Capital estimates that there are 721,000 bank-owned homes nationwide, up from 112,000 two years ago.  Barclays expects the total to rise 60% more before peaking in late 2009.  Source: Wall Street Journal 8/13/08.

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier.  Delinquencies jumped even more for jumbo loans.  They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.  Source: CNNMoney 8/16/08.

The next round of delinquencies and foreclosures will come from the option ARMS coming due.  Borrower's payments could jump as much as 80% when their mortgages are recast.  (Click here to see Next on the Block graph).

Other factors affecting pricing are the large inventory and more stringent lending standards.  Total housing inventory at the end of July rose 3.9% to 4.67 million existing homes available for sale, which represents an 11.2 month supply at the current sales pace, up from an 11.1.month supply in June.  Source: Nat. Assoc. of Realtors/

N.C., WILMINGTON, CAROLINA & KURE BEACHES

North Carolina ranks 4^th in the nation for net migration, using state to state migration flows.  It ranked 5^th in 2006.  Source: State Migration Report 9/2/08.

Wilmington

The current listing inventory has decreased 119 units from August and 172 units from September 2007.

The average list price of $424,144 is up by .05% from August, but down 3% from September 2007.

The monthly average sold price is up 10.6% from July and down .06% from August 2007.  This is the first significant increase seen in several months.  The year over year (9/1/07 – 8/31/08) average sold price of $264,651 is 2% behind $270,183 of this time last year.

The number of sold homes in August is down 21.4% from last month.  In looking at a rolling 12 months, the number of sold units year over year is 5,108 compared to 7,089 last year, a decrease of 27.9%.

The median sold price is $202,900 for August, 2008, a 6.9% decrease over July.

The market absorption rate gives us a 14.3 month supply of single family homes, an increase of 2.5 months from July.  The preferred number of months in supply is 5-6 months.

Carolina & Kure Beaches

There are 640 single family homes for sale, a 49 unit decrease over August.

The average list price is $544,281, an increase of $13,477 over August, 2008.

The average sold price for August was $351,590, a decrease over August, 2007, which was $391,026.  August showed an average sales price increase of 7.7% over July.  Comparing the first 8 months of 2008 with the first 8 months of 2007, the average sales price is down 7.1%

Source: August 2008 MLS Report.

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