NATIONAL NEWS

Home sales were fairly flat from January 2007 to August 2008, indicating that we were at the bottom of the declining sales market.  Finally, in September 2008, we saw a significant increase in sales (see Sales-US graphs: Graph 1, Graph 2).  In September, existing sales rose 5.5% (the highest in 5 years), pending sales rose 8.8% and new construction sales increased 2.7%.

Home sales are improving rapidly in several states, such as California, Nevada, Arizona and Florida. Source: Real Trends 10/08.  In these states, much of the pricing correction has occurred due to the large number of foreclosures.  RealtyTrac reported that Nevada, Arizona and Florida had the nation's top foreclosure rates, with California in the top 10.

The percentage of homeowners who think the value of their homes has decreased is now over 50%.  As sellers acknowledge this reality and adjust the price of their homes to the market, sales will increase, reducing inventory (see graph Homeowner Perception).

Asking prices for homes across the country fell 1.4% in September, bringing the total drop in the last three-month cycle to 2.9%. Source: Altos Research & Real IQ 9/4/08.  In September, 46% of homes listed had a price break.  Source: ZipRealty Market Report 3Q 2008. 

Twenty-eight major metropolitan areas monitored by ZipRealty saw a 9.6% decrease in the number of homes available for sale at the end of Q3 2008 compared to Q3 2007.  The beginnings of a reduction in inventory in existing and new single-family homes can be seen on this graph: Month's supply.  However, inventories remain at historically high levels and will have to decrease significantly to see renewed pricing pressure.

Sellers

The loan delinquency rate is now the highest on record.  The subprime market has peaked and is declining, but a second wave is in process with Libor option arms (see Mortgage Delinquency Rates).  Subprime foreclosures fell 3% quarter over quarter, while prime foreclosures jumped by more than 20% in the same time period.  This suggests another large mess in 2009.  Source: Housing Wire 10/27/08.

Of all homes with a mortgage, 18.3%, or 7,628,234, are under water (in a negative equity situation).  Another 9,753,818 are within 5% of being under water.  If prices decrease another 5%, as is expected, these homes will also be in a negative equity situation.  Source: First American Core Logic 10/08.  To see a table of mortgages in a negative equity situation, state by state, go to the Properties Outstanding table (Table 1, Table 2).

Though money is still available, the number of people qualifying is decreasing.  The banks now have the tightest lending standards on record (see Bank Tightening Standards Graph).

Real house prices increased significantly from 1995-2007 compared to wages (see Real House Prices Graph).  However, the affordability factor has improved in the last year.  In October 2005, at the peak of the boom, the median sales price reached 7.3 times per capital income.  By this May, it was 5.7 times, just about the historical norm.  Source: SmartMoney 11/1/08.

Fitch Ratings states that "The rate of U.S. home price declines will slow in the coming months, though another 10% decline is in the cards before home prices begin to exhibit more stability."  Fitch believes that most of the additional 10% decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months, with prices exhibiting more stability in 2010.  Source: Fitch Ratings 10/20/08.

A more grim scenario is expressed by Fox-Pit Kelton housing analyst Robert Stevenson.  His expectation is that there will be an additional decline in home prices of 20-25%.  However, in a bear case scenario with unemployment exceeding 9%, prices could drop 30-35%.  Source: Market Watch 10/27/08.  For sellers, these predictions indicate that 2003 pricing should be used and waiting to sell means even lower pricing.

Buyers

Even with the current pricing adjustment due to the unreasonable increases of 2005-2006, a home purchase still represents a wise investment compared to the stock market.  See Return on Investment Graph.  A report from the Center for Economic and Policy Research concluded that prospects for building equity by 2012 have improved somewhat in 36 cities and are also good in all 61 markets that are not bubble markets.  A bubble market is an area where the median home price exceeds annual rent by 18 times or more.  Historically, the ratio has been closer to 15 to 1.  Source: Inman News 10/28/08.

In the seven weeks after the announcement of the bailout, 30 year fixed rates increased (see Mortgage Rates graph).  The rate of an average 30 year mortgage rose by 0.5% at the end of October, the biggest one-week jump since 1987.  The 30 year fixed rate should average 6.2% in the fourth quarter and then average 7.0% in 2009.  Source: Daily Real Estate News 11/7/08.  For buyers, waiting for home prices to decline further will be negated by interest rate increases.  For example:

$400,000 @ 6% = $2398.20
$375,000 @ 7% = $2494.88 (a 6% drop in price) 

WILMINGTON

The monthly average sold price is up 7.5% from last month and down 11.2% from October 2007.  It is down 7% from year end 2007.  The current year over year (11/1/07-10/31/08) is 4.7% behind last year at this time.

The number of sold homes in October is down 7.5% from last month and down 26.7% on a rolling 12 month average.

The market absorption rate, the number of homes sold in October divided by the current listing inventory, gives us a 16.4 month supply of single family homes.

The average list price to average sold price is 94.7%

In October, 21.3% of sold properties reported a sales concession.

Below is a table to show you the statistics on five area zip codes:

To view past issues of the Keeping Current Newsletter, go to www.DianeLMoore.com.  I have added a live news video to the site, which is updated daily.