-- Posted Tuesday, 14 March 2006 | Digg This Article
Dudley Baker and Lorimer Wilson
PreciousMetalsWarrants
March 14, 2006
In an earlier article entitled ‘Our Worst Nightmare: The Puncture of the Current U.S. Housing Bubble’ we noted that “The key to holding up the entire speculative US financial system with its current excessive levels of debt – federal (current account and trade), state, municipal, corporate and household – is maintaining the U.S. housing bubble. Anything less would result in America’s worst nightmare and, in short order, the entire world. One too many additional increases in the Fed rate may well turn out to be the U.S. economy’s Achilles’ heel. With at least two more increases expected in the first half of 2006 this could well be the year.” Well, it would seem from all reports of late that the Fed has, indeed, gone beyond the tipping point with its latest interest rate increase and, as such, has set up America for a financial meltdown. Rather strong words, you say! Hardly. It is just what many of the world’s financial experts have predicted will happen in our recent article ‘Ominous Warnings and Dire Predictions of World’s Financial Experts, Part 1.’
Be that as it may, the vast majority of Americans, as indicated in a recent Bloomberg Los Angeles Times poll, remain confident that housing values will continue to flourish and that the high-flying market will come in for a smooth, soft landing instead of a crash. In fact, on average, only 15% of those Americans surveyed expect home prices in their neighbourhood to fall during the next 6 months while 26% see prices rising during that time while those investors making more than $100,000 a year were even more optimistic at 12% and 43% respectively. Indeed, almost 7 out of 10 expect the value of their homes to appreciate by 5% to 30% during the next three years and more than a third singled out real estate as the place they would put additional money if they had it to invest.
Unfortunately, the facts below do not support their optimistic outlook which is doing nothing more than set them up for a harsh dose of reality and financial loss as events unfold.
Housing Starts Up 14.5%
The Census Bureau of the Department of Commerce reported that privately-owned housing starts jumped 14.5% in January (single-family housing starts were up 12.8%), the highest since March 1973 and 4.0% above the January 2005 rate. Taking out seasonal adjustments, the raw number of housing starts rose 11% in January making it the best January for housing starts on record since the Bureau started keeping records in 1959. Some of that record increase can be attributed to the unusually warm weather in January, which prompted many builders to start work unexpectedly early. Nevertheless, statistics from the South, which accounts for nearly half of new home construction in the country, and where weather and seasonal adjustments are less of an issue, showed an 8.7% gain in January for all privately-owned housing starts and 8.3% for single-family housing starts.
Building Permits Up 6.8%
Again, the Census Bureau reported that privately-owned housing units authorized by building permits were up 6.8% in January (single-family authorizations were up 2.4%) vis-à-vis December and 3.8% above January 2005 (single-family were 3.1% above January 2005).
Applications for Purchase of New Homes Down 1.2%
The Mortgage Bankers Association’s Weekly Mortgage Application Survey for the week ending Feb.24th showed a decrease of 1.2% from the previous week on a seasonally adjusted basis (down 9.6% on an unadjusted basis) in applications for the purchase of new homes and an 18.9% decrease compared with the same week one year earlier.
Index of Pending Existing Home Re-sales Down 1.1%
The National Association of Realtors in their March 6th report said its index of pending home re-sales of existing single-family units, condominiums and co-ops fell 1.1% in January, following a 2.6% decline in December, and has steadily declined since hitting a record high in August and was 4.8% below a year ago. On a regional basis pending resales increased 6% in the Midwest and 0.4% in the Northeast but fell 1.9% in the West and 5.1% in the South. A pending sale is one in which a contract was signed, but not yet closed. It usually takes 4-6 weeks to close a contracted sale. This provides a gauge of the demand for housing and economic momentum.
New Home Sales Down 5%
The Department of Housing and Urban Development and the Census bureau (Department of Commerce) have jointly issued a report that sales of new homes fell 5% in January from a year earlier albeit 3.3% above a year ago even as the number of unsold homes on the market rose to a 9 year high..
Existing Home Sales Down 2.8%
The National Association of Realtors reported that, nationally, sales of existing homes – which make up 85% of the housing market - fell 2.8% in January and were 5.2% below a year ago. (Regionally, sales fell 14.9% in the Northeast, 10.8% in the Midwest, 10.3% in the South, and increased by 11.3% in the West). It is the fifth consecutive monthly decline in sales, which are down 10% from their pace in September. Sales of condominiums and co-op apartments declined 10.6% in January and were 4.8% lower than in January 2005.
Inventory of Unsold Existing Homes Up 2.4%
Again, the National Association of Realtors reported that the inventory of unsold existing homes on the market increased 2.4% from December representing the largest inventory of unsold existing homes since 1998. The total number of homes available for sale at the end of January was up 35.7% from a year earlier representing a 5.3-month supply, up from 5.1 months in December and the highest since August 1998.
Inventory of Unsold New Homes Up 1.2%
The Commerce Department has reported that the inventory of unsold new homes was up 1.2% in January from December and up more than 20% from a year ago representing a 5.2-month supply, the highest since late 1996.
Median Home Prices Down 2%
The National Association of Home Builders reports that the nation-wide January median home price, the price at which half the homes sold for more and half sold for less, is unchanged from the median price for all of 2005 and down 2% from the record high reached in October.
Affordability Down to 14 year Low
The Housing Affordability Index Affordability (HAI) continues to drop and is expected to reach a 16 year low in 2006. In March 2006 it was 136 (down from 149 in December and 155 in December 2004) meaning that the median family has 136% of the necessary income to qualify for the median priced home using a twenty percent down payment and a thirty year fixed rate mortgage. If the down payment were only 10% the HAI would be 116 and if the down payment were only 5% the HAI would only be 108.
Foreclosures Up 27%
According to Realty Trac’s Monthly U.S. Foreclosure Market Report for January 2006 foreclosures were up 27% nationwide in January from the previous month (up 13.5% in December) and up 45% from January 2005 with FHA loans (subsidized and sub-prime) falling at nearly twice the national level in some areas. Looking ahead, as interest rates rise to near 7%, and with many recent buyers having bought homes with adjustable-rate mortgages, one can expect an increase in the number of foreclosures across the nation.
As the above mentioned reports clearly indicate, housing demand is weakening rapidly even as housing inventories continue to grow nationwide. Economics 101 suggests that U.S. housing prices will continue their recent downtrend as motivated sellers and speculators are forced to reduce prices as they try to sell to a shrinking pool of buyers. In addition, mortgage rates are near two year highs and are unlikely to provide any support to the housing market as long-term interest rates continue to creep steadily higher.
Housing demand is weakening badly? OK, new home sales are down 5% and existing home sales are down 2.8%. Surely that does not suggest the housing bubble has burst. It may well appear to be more like a slow leak until one looks at specific hot spots across the nation.
California Home Sales Down 24.1%
According to the California Association of Realtors (C.A.R.), sales of existing, single-family detached homes were down 24.1% in January 2006 from a year earlier and 5.9% from December as compared to 5.2% and 2.8% respectively on a national basis. The drop of 24.1% is the highest year-on-year decline since December 1990 when sales dropped 25.2%.
C.A.R.’s Unsold Inventory Index for existing single-family detached homes in January 2006 was 6 months, compared to 3.2 months for the same period a year ago and the median number of days it took to sell a single family house was 48 days compared with 44 days for the same period a year ago.
The median price, according to DataQuick Information Systems, was down 2.1% in January from the previous month. The declines reflect a weakening in consumer confidence, and a rise in mortgage interest rates which have sidelined nervous home buyers, the association said.
C.A.R.’s Housing Affordability Index stood at 14% in December, compared with 19% for the same period a year ago (49% and 55% respectively on a national basis). The number represents the percentage of households in California with a minimum household income of $134,200 able to afford a medium-priced home currently valued at $548,430 based on an average effective mortgage interest rate of 6.33% and assuming a 20% down payment.
Massachusetts Home Sales Down 21% and Listings Up 41%
According to the Massachusetts Association of Realtors the number of single-family homes sold state-wide fell 21% in January, single-family home prices fell 0.1% in January, breaking a 114-month streak of rising prices, and ‘active listings’ – homes being offered for sale – for both single-family and condos rose 41% from January, 2005.
Florida Existing Home Sales Down 19%
The numbers are clear: it has become a buyer’s market in Florida. State-wide, sales of single-family existing homes were down 19% in January 2006 vis-à-vis January 2005 and down 18% for condos during the same period.
In Sarasota/Bradenton January 2006 sales were down 48% compared to January 2005 (up from a 42% variance from a month earlier comparative period) resulting in a 20-month supply on hand. In West Palm Beach/Boca Raton, Gainesville, Fort Lauderdale, Naples, Miami, Pensacola and Daytona Beach existing home sales were down in January compared with January 2005 by 39%, 37%, 36%, 31%, 28%, 24% and 20% respectively. In Orlando, while sales of existing homes were up 8%, inventory was up 262.22% as compared to January 2005 representing the highest inventory of homes for sale since the local realtor association began tracking the category in 1995.
Alabama Existing Home Sales Down 21.5% and Listings Up 17%
According to the Alabama Real Estate Research and Education Center at the University of Alabama the sale of existing homes was down 21.5% in January from the previous month albeit up marginally from the same period a year ago. The inventory of existing homes was up 17% in January compared to January 2005 which represented a 7.4-month supply, a considerable increase over December’s 5.7-month supply. This contributed to the drop in average selling price in January of 5.2% which was the fifth straight month of declining prices.
Pennsylvania Existing Home Sales Down 17%
The Pennsylvania Association of Realtors reported that the sale of existing homes was down 17% in January 2006 from the same period a year ago.
Minnesota Home Sales Down 7% and Inventory Up 35%
According to the Regional Multiple Listing Service of Minnesota February 2006 pending home sales were almost 7% below the same time last year while total inventory of single-family homes was up 35%.
What Does All This Portend for 2006 and Beyond?
The Alabama Real Estate Research and Education Centre says, “A slow but steady increase in the number of unsold homes, coupled with slowing sales, is beginning to exert downward pressure on prices.” Jim O’Sullivan, a senior economist at UBS Securities says “It is unambiguous that home sales are declining and that over the course of the next few months we will see more evidence that growth is cooling as a result of the slowdown in housing.” The National Association of Realtors said February 7th that “Sales of existing homes will probably fall 4.7% in 2006 on average across the country, and sales of new dwellings will decline 8.5%.” That translates, according to the Office of Federal Housing Enterprise Oversight in a March 1st statement into “increases in the median prices of existing and new homes of no more than 5.0% and 5.7%, respectively, in 2006.
March 14, 2006
Dudley Baker and Lorimer Wilson
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants
Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies’ websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.
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-- Posted Tuesday, 14 March 2006 | Digg This Article
