Why Did New Home Sales For November, 2009 Fall? Look To The South And Falling New Home Inventories For Answers; Predictions For The Future

On December 23, 2009, statistics for new-home sales in November, 2009 were released in a joint news release by the Census Bureau and HUD. The report showed an unexpected 11.3% decline in new-home sales from a revised 400,000 homes in October to 355,000 homes in November. Most economists had expected an increase in new home sales in November. These figures are reported at a Seasonally Adjusted Annual Rate (SAAR).

The October figures had already been revised downward by 6.7% to the 400,000 homes from 430,000 homes as previously reported. So counting from the original October report of 430,000 homes, the November sales figure of 355,000 represents a decline of 75,000 homes, or 17.4%.

This is a whopping big decline in just a 30-day period that puts new-home sales back almost exactly at the February, 2009 level of 354,000 homes, and just 26,000 homes above the January low of 329,000 homes.

Inventory expressed in Months of Supply increased to 7.9 months from the revised October figures of 7.2 months, or 6.7 months as originally reported. However, the actual number of homes for sale fell by 7,000 homes from 241,000 homes in October, 2009 to 234,000 homes in November, 2009, a decrease of 2.9%.

The year-over-year Supply of Homes fell by 135,00 homes from 369,000 in November, 2008 to 234,000 in November, 2009, a decline of 36.6%. In terms of Months of Supply, inventory fell from 11.4 months in November, 2008 to 7.9 months in the current report. The highest level of inventory in this cycle was 12.4 months in January, 2009.

So, what happened? Why was there such an enormous decline in reported new-home sales?

Our Conclusions:

1. Only about 10% of the decline was caused by the disconnect caused by the First-Time Home Buyer Tax Credit that was set to expire on November 30, 2009 but was extended and expanded when President Obama signed it into law on November 6, 2009.
2. All of the decline was in sales of homes priced below $400,000. Home sales above $400,000 remained basically unchanged.
3. Within the statistics, there was sharp increase in the proportion of homes sold that were not yet started and a substantial fall off in sales of homes that were under construction but not yet completed or homes that were already completed, causing us to conclude that the sharp reduction in new-home inventories is finally causing a reduction in sales of new homes priced under $400,000.
4. Most of the decline was caused by a single-month, 36.8%, collapse of historic, possibly even unbelievable, proportions in sales of homes in the South region.

Our Predictions:

1. The new Home Buyer Tax Credit will have only a very limited effect on new home sales because the inventories are not there to to support sales in the key price ranges under $400,000. (And new homes that are started from scratch typically require 6-to-8 months to complete from date of contract, meaning that only a limited number of new, relatively small, non-custom homes can be sold in the first 60-to-90 days of the new program that will be completed by the June, 2009 expiration date.)
2. Accordingly, most of the impact of the new Home Buyer Tax Credit will accrue to existing-home sales.
3. Going forward, an increasingly larger proportion of new home sales will be for homes not yet started, because inventories of starter homes have been wiped out by the initial First-Time Home Buyer program, and homes already in inventory are in the wrong price ranges (Too high) to satisfy move-up demand below $400,000.
4. There will be a sharp revision in seasonally-adjusted, South region home sales in December. (Either that, or, it will be discovered that the South region actually broke off from the rest of The United States of America and is sinking in the Gulf of Mexico.)

In preparing our conclusions and predictions, we looked closely at the entire New-Home Sales report for November, 2009. Here are our findings:

1. A surprisingly small amount of the decline, around 5,000 homes, was probably due to the scheduled expiration of the tax credit. (We calculated this by applying the percentage decline in sales under $200,000 compared with the overall percentage decline against the prior month’s sales.)
2. There is something crazy going on with the statistics regarding home sales in the South region geographic breakout. 87.5% of the decline in actual total new-home sales between October and November was in the South. (Total unadjusted, new-home sales fell by 8,000, sales in the South fell by 7,000. Meanwhile, the rest of the country stayed pretty much unchanged.)
3. Upon examining the South region further, the Seasonally Adjusted Annual Rate of sales in the South region was only 179,000 homes. We reviewed the history of this series on the Census Bureau website, and this is the lowest November ever recorded in the 36 years since the regional breakdowns began in 1973, and the lowest monthly sales recorded in 18 years since the 170,000 home sales reported for January, 1991.
4. Since monthly regional breakdowns for the South region began in 1973, there have only been 8 months ever reported under 179,000: once in the 1991 housing recession; four times in the great 1980-1982 housing recession; and three times in the 1973-to-1975 time period when the regional breakdowns first started.
5. In the month following the 8 monthly reports where South region sales fell below the current level of 179,000 homes, sales increased the following month by an average of 18.4%. Only one month declined: Sales in December 0f 1974 fell 9.0% after having fallen 3.8% in November, 1974.
6. The breakdowns in sales by price range show that the entire decline in sales was almost evenly spread among the first four price categories: Under $150,000; $150,000 to 199,999; $200,000 to $299,999; and $300,000 to $399,999.
7. Home sales above $400,000 were unchanged at 3,000 homes in November, causing their share of total sales to rise by 4 percentage points from 9% in October to 13% in November.
8. The breakdowns by Stage of Construction shows an increase of 41.5%  in the share of sales of homes not started from 21.2% of total sales in October to 30.0% in November.
9. The share of home sales under construction but not yet completed fell 9.1% from 33.3% of total sales in October to 30.0% in November.
10. The share of completed homes fell 12.1% from 45.5% of total sales in October to 40.0% in November.
11. In analyzing the homes for sale at the end of each month broken down by the stage of construction and the number of sales of that category the following month, there was a 20.2% increase in the percentage of home sales for homes that were not already started from 18.8% in October to 22.6% in November.
12. However, there was an 32.3% decrease in the percentage of home sales for homes under construction from 9.9% to 6.7%.
13. And there was a 30.9% decrease in the percentage of home sales for completed homes from 13.6% to 9.4%.

These findings caused us reach the conclusions and make the predictions listed above.

Sharp 11.6% Drop In Home Loan Purchase Applications In December 18, 2009 MBA Weekly Survey

The Mortgage Bankers Association (MBA) today released its survey for the week ending December 18, 2009.

The average 30-year mortgage during the week was 4.92%, which was unchanged from the rate reported one week earlier. The average 15-year mortgage during the week was 4.34%, which increased 0.01%from the week earlier survey.

Seasonally adjusted refinance applications fell 10.1%, and purchase  applications fell 11.6% from the prior week according to the survey. The four-week moving averages were down 1.0% for purchase applications  and up 0.6% for refinancing applications.

The refinance share of applications increased to 75.9%. Refinance applications tend to be highly sensitive to interest rate levels.

The fact that purchase applications fell sharply is not surprising given that the First-Time Home Buyer Tax Credit was only extended on November 6, 2009, at which time it was also expanded to cover some previous home owners. Nonetheless, we were expecting a fairly sharp drop off in purchase applications because we had expected that it would take several months for new buyers to get in gear to move forward with their home purchase plans.

The approaching Christmas holiday celebration no doubt also distracted potential home buyers from their appointed rounds. Accordingly, a decrease in purchase applications was expected.

However, these low rates continue to be encouraging for home purchases going forward. After the holidays we will likely see more home buyers stepping up to the plate.

Follow the link to see the full release: http://www.mbaa.org/NewsandMedia/PressCenter/71390.htm

Existing Home Sales Jump 7.4% In November, 2009 Report; Inventories Fall To 6.5 Month Supply

The National Association of Realtors (NAR) announced on December 22, 2009 that existing home sales in November 2009 jumped 7.4% from the previous month to an annual rate of 6.54 million and were 44.1% above the November 2008 level of 4.54 million homes.

For the second straight month, sales rose in all price classes, whereas, prior to October, “The only Consistent gains were in the lower price ranges.”

Especially notable was the decline in the inventory of homes for sale, which fell 1.3% to 3.52 million homes, representing only a 6.5 month supply of homes. The Inventory for Single-Family homes fell to a 6.2 month supply. A supply under 7 months  is usually consistent with stabilization in prices.

In thinking about existing home sales data, it is important to remember that the NAR home sales data actually represents home closings. Almost all the homes closing in October were actually sold, that is the purchase agreements were signed, in previous months, typically 6-to-8 weeks earlier. New sales contracts signed are picked up in the association’s Pending Home Sales Report.

Since the first-time home buyer tax credit was set to expire on November 30, 2009, we should anticipate existing home sales to be strong through November, after which they should fall sharply.

This result is likely even though the Tax Credit was extended and signed by President Obama on November 6, 2009, because it takes a while for a buyer to gear up to purchase a home, and then another 6-to-8 weeks to work through the loan application, home appraisal, and closing procedures.

The most favorable aspect of this report was probably the decline in the inventory of homes available for sale, which fell 15.5% from the year-earlier inventory level of 4,163,000 homes to the current level of 3,518,000 homes.

Excessive inventories have been a major cause of falling home prices. The average home price in November was $216,400, which was only 3.0% lower than the year-earlier level. 

As home prices firm, consumer confidence should rise, further enabling the economic recovery.

This was a favorable report.

See the report at: http://www.realtor.org/research/research/ehsdata

Home Purchase Loan Applications Flat In December 11, 2009 MBA Survey

The Mortgage Bankers Association (MBA) today released its survey for the week ending December 11, 2009.

The average 30-year mortgage during the week was 4.92%, which was up 0.04% from the 4.88% reported one week earlier. The average 15-year mortgage during the week was 4.33%, which was unchanged from the week earlier.

Seasonally adjusted refinance applications rose 0.9%, and purchase  applications fell 0.1% from the prior week according to the survey. The four-week moving averages were up 4.2% for purchase applications  and up 0.8% for refinancing applications.

The refinance share of applications increased to 75.2%, which in the highest share since the April 24, 2009 survey. Refinance applications tend to be highly sensitive to interest rate levels.

The fact that purchase applications were basically flat is somewhat surprising given that the First-Time Home Buyer Tax Credit was only extended on November 6, 2009, at which time it was also expanded to cover some previous home owners. Nonetheless, we were expecting a fairly sharp drop off in purchase applications because we had expected that it would take several months for new buyers to get in gear to move forward with their home purchase plans.

Accordingly, the stability of purchase applications is encouraging. And these low rates continue to be encouraging for home purchases going forward.

Follow the link to see the full release:

http://www.mbaa.org/NewsandMedia/PressCenter/71362.htm

Pending Home Sales For October 2009 Up For Ninth Straight Month

The National Association of Realtors® (NAR) released its Pending Home Sales Index for October 2009 today. Pending sales unexpectedly rose 3.7% from the prior month. The index increased each of the last 9 months, and is now 28.6% higher than in October 2008. This is the largest annual increase ever recorded for the index.

Economists had been expecting a decline in sales as the November 30th expiration of the Home Buyer Tax Credit approached, thinking that buyers would not have enough time to buy in October and still close by November 30th. However, the increase may signal that there is underlying demand unrelated to the tax credit, which could be a good sign.

The Home Buyer Tax Credit has since been extended and expanded. President Obama signed the extension on November 6, 2009.

Lawrence Yun, NAR Chief Economist

NAR Chief Economist Lawrence Yun pointed out that home closings still could decline in coming months because “The expanded tax credit has only been available for the past three weeks but the time between when buyers start looking at homes until they close on a sale can take anywhere from 3 to 5 months. Given the lag time, we could see a temporary decline in closed existing-home sales from December till early spring when we get another surge.”

“Still,” he added, “as inventories continue to decline and balance is gradually restored between buyers and sellers, we should reach self-sustaining housing conditions and firming home prices in most areas around the middle of 2010. That could mean broad wealth stabilization for the vast number of middle-class families.

Existing Home Sales In October 2009 Jump 10.1% For Month And 23.5% From Prior Year

The National Association of Realtors (NAR) announced on November 23, 2009 that existing home sales in October 2009 jumped 10.1% from the previous month to an annual rate of 6.10 million and were 23.5% above the October 2008 level of 4.94 million homes.

Especially notable was the decline in the inventory of homes for sale, which fell 3.7% to 3.57 million homes, representing only a 7.0 month supply of homes. The Inventory for Single-Family homes fell to a 6.8 month supply. A 7-month supply is usually consistent with a stabilization in prices.

In thinking about existing home sales data, it is important to remember that the NAR home sales data actually represents home closings. Almost all the homes closing in October were actually sold, that is the purchase agreements were signed, in previous months, typically 6-to-8 weeks earlier. New sales contracts signed are picked up in the association’s Pending Home Sales Report.

Since the first-time home buyer tax credit was set to expire on November 30, 2009, we should anticipate existing home sales to be strong through November, after which they should fall sharply.

This result is likely even though the Tax Credit was extended and signed by President Obama on November 6, 2009, because it takes a while for a buyer to gear up to purchase a home, and then another 6-to-8 weeks to work through the loan application, home appraisal, and closing procedures.

But make no mistake, this report was good. Real good!

See the report at: http://www.realtor.org/research/research/ehsdata

Home Loan Purchase Index Falls 11.9% In Week Ending November 6, 2009 Per MBA

The Mortgage Bankers Association (MBA) today released its survey for the week ending November 6, 2009. The average 30-year mortgage during the week was 4.90%, which was down 0.07% from the 4.97% reported one week earlier. These rates are still near historical lows.

Seasonally adjusted refinance applications rose 11.3%, and purchase applications fell 11.7% from the prior week according to the survey. The four-week moving averages were down 6.6% for purchase applications and down  3.4% for refinancing applications.

Refinancing applications tend to be highly sensitive to changes in interest rates.

The decline in weekly purchase results adds on to the 5.0%, 7.6%, 5.2% , and 1.8% decreases in loan applications for home purchases seen during the prior four weeks, respectively. This probably reflects the end of the burst of first-time home buyer sales due to the approaching November 30th end of the tax credit.

The home buyer tax credit extension was signed by President Obama on November 6, 2009, the ending date for this survey. Application activity should increase again. But there will be some lags involved as a new set of potential home buyers will probably need several weeks to get themselves set up buy.

So look for home loan purchase applications to decline for the next month or so, and then increase sharply as buyers start queuing up again.

See the news release: http://www.mbaa.org/NewsandMedia/PressCenter/70938.htm

Details On The Home Buyer Tax Credit

President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law yesterday morning. Now the details of the legislation are beginning to appear, and they are mostly good.

1) The original $8,000 First-Time Home Buyer Tax Credit is extended and enhanced:

• A First-Time Home Buyer is someone who has not owned a Principal Residence during the 3 years prior to purchase of the new residence.
• The credit is equal to 10% of the purchase price to a maximum of $8,000.
•  Now you have till June 30, 2010 to Purchase (close) on a home, provided you have it under contract by April 39, 2010. For new homes under construction, the IRS says that “By statute, a residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence.”
• For homes purchased after the date of the act, November 6, 2009, income limits to receive the full credit  increase from $75,000 to $125,000 for single taxpayers and from $150,000 to $225,000 for married couples filing jointly.
• Homes priced $800,000 or less qualify.
• The credit does not need to be repaid as long as you occupy the new home as your Principal Residence for 3 years.

2) The act adds a $6,500 Move-Up Tax Credit For “Long-Time Residents:”

• A “Long Time Resident is someone who has lived in their previous home for 5 of the last 8 years.
• The credit is equal to 10% of the purchase price to a maximum of $6,500.
• The credit applies to homes purchased after November 6, 2009.
• You have till June 30, 2010 to Purchase (close) on a home, provided you have it under contract by April 39, 2010. For new homes under construction, the IRS says that “By statute, a residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence.”
• Income limits to receive the full credit are $125,000 for single taxpayers and $225,000 for married couples filing jointly.
• The credit does not need to be repaid as long as you occupy the new home as your Principal Residence for 3 years.

3) Partial credit:

• The income used for the purposes of the act is Modified Adjusted Gross Income (MAGI). MAGI is Adjusted Gross Income (AGI), less certain deductions.  (You can look at your tax return to see what is included in this figure.)
• Even if your income is above the limit to receive the maximum credit, you might still qualify for a partial credit. The credit phases out to zero for the next $20,000 of income above the stated income limits.
• For example, a single person with a MAGI of $138,000 would lose 65% of the credit ($138,000 – $125,000 = $13,000/$20,000 = .65). This means that they would only get 35% of the maximum credit, or $2,275 or $2,800, depending on which program the qualified under.

4) Who is left out:

• Buyers who owned a Principal Residence in the last 3 years but did not live in the home for a five-consecutive-year period. They don’t qualify for either the First-Time Home buyer Program or the Long-Time Resident Program. Sorry. Call your elected officials.
• A large chunk of home buyers who want to build an otherwise qualifying new, custom residence from scratch. The reason is that it typically takes 8-to-9 months to build a new custom residence from date of contract to date of completion in most parts of the country. (2-to-3 months to go through designing the home, appraisal, loan approval, and permitting, and another 5-to-6 months to build the home.) This process can be compressed, and there is probably a brief window of opportunity for custom home buyers who can move quickly, almost immediately, to get their new home under contract and get moving.  And in some parts of the country, small, simple, homes can be built in under 90 days. But weather and other complications abound, and new appraisal rules add to approval times.
• Another group left out is custom homebuilders in most parts of the country whose customers would have built a new custom home but can’t get it built in time to qualify within the time limits.
• The last group left out is building trades people in most parts of the country who would have had jobs building the new custom homes that can’t get it built in time to qualify.

Obviously, we disclaim any particular tax expertise. We are not tax attorneys nor tax accountants. So, do not make any decisions based solely on what you read here. (We don’t have your back, dude.)

 The National Association of Home builders (NAHB) has an excellect website if you want more information, including a list of home buyer resources that contains a link the the IRS website on this topic. You can see it at: http://www.federalhousingtaxcredit.com/home.html

President Obama Signs Home Buyer Tax Credit (Update 1)

President Obama today signed the Home Buyer Tax Credit. However, details are still sketchy, and it may be several days before certain provisions are clarified.

The following Christian Science Monitor article contains a link to a National Association of Realtors (NAR) summary of the program. Click below to see the article and the summary link:  http://features.csmonitor.com/economyrebuild/2009/11/06/home-buyer-tax-credit-more-questions-answered/

One confusing aspect of the extension that the NAR says is different from the original program is the treatment of a home under construction on a home buyer’s own land.

Under the original Home Buyer Tax Credit program, a home had to be closed as of the end of the program, November 30th. For an existing home, the buyer had to attend closing and sign the HUD-1 closing sheet and take title to the property. For a home under construction, it had to be completed and occupied as of the end of the program.

The NAR now says that under the extension, a new home under construction on the customer’s property has to be finished by April, 30th, but a home being built on the builder’s lot, or an existing home only has to be under contract by April 30th. Then it has an extra two months until June 30th to be completed and close.

This is a serious inconsistency, based solely on who owns the lot that could severely impact the already limited potential for new home construction under the extension.  And it gives preference to buyers who buy a home under construction on the builder’s land or an existing home rather than on their own land.

I’m sure farmers won’t like it.

We’ll have to wait a few days for clarification on this subject.

UPDATE: NEW INFORMATION:

According to the National Association of Home Builders (NAHB), the rules haven’t changed on the treatment of a home under construction.

According to a link to the IRS website on the NAHB website, “By statute, a residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence.” You can see it at: http://www.federalhousingtaxcredit.com/home.html

Incredible Window Of Opportunity For Home Buyers Will Open This Weekend: Get Ready, Get Set, Buy!

The Window of Opportunity is going to open this weekend

You’ve heard the news.

Now get ready to take advantage of it.

The President will sign the Home Buyer Tax Credit Extension into law this coming weekend. And your time is already starting to run out.

You’ll have until April 30, 2010 to sign a purchase contract on a new principal residence, provided you close on the sale by June 30, 2010.

You may think that’s a lot of time. But if you’ve ever looked for a home to buy before, you know that it can take several months just to find the right home, then months more to negotiate the contract, apply for your loan, schedule closing, attend the walk through inspection, and attend closing and sign the paperwork.

Time is even tighter if you want to build a new home

But this window of opportunity will be open but very briefly for a particular type of home buyer – a buyer who wants to build a new home from scratch, built to their own specifications. These buyers have almost no time to spare.

If you’re one of those buyers, you are already late.

It Takes 8-9 Months To Build A New Home From Contract to Move In

That’s because it typically takes 8-to-9 months to go from contract to completion for an average-sized home in most parts of the country: 2-3 months to plan it, and another 4-6 months to build it. That works out to between 240 days and 270 days. But June 30, 2010 is only 237 days from today!

Are you too late already?

If you plan on agonizing over what you should do for a couple of months before even starting to figure it out, yes. You are too late. Forget about it. You will never get it all done by June 30th.

But if you move quickly, grab your spouse or significant other, call your builder and lender to schedule appointments, and go out and get started to buy your dream home this weekend, you’ve still got a chance. It’s tight but doable.

Why is it such a hot deal that I should drop everything and buy a home?

Here’s why:

Free Cash From Uncle Sam

1. Uncle Sam will give you up to 10% of the purchase price of a new home up to $8,000 if you are a First Time Home Buyer and close by June 30th.

2. Uncle Sam will give you up to 10% of the purchase price of a new home up to $6,500 if you are a “Long-Time Resident” of a principal residence and close by June 30th. (A Long-Time Resident is defined as someone who has lived in another principal residence for 5 of the last 8 years as of the date of purchase of the new principal residence.)

3. You don’t have to sell your existing home, but Uncle Sam will make it easier on you to sell it, because he will also give your buyer as much as $8,000 to buy your home, depending on their situation.

4. This means that he will be giving you between $13,000 and $14,500 to help you move into your new home!

5. Interest rates are incredibly low. 30-year fixed rates averaged 4.97% in today’s Mortgage Banker’s Association survey.

6. The Fed is on record that it will start to slow down purchases of mortgage-backed securities after the first of the year, meaning that interest rates will start to rise again. (This may be the lowest rates will be in your lifetime!)

7. Congress is on record that there will not be another extension. (Google Johnny Isakson’s (D-GA) remarks on the topic. And he is one of the primary proponents of the tax credits.)

8. The inventory of existing homes and builders’ spec homes is beginning to diminish, and soon there will be shortages in many places at many price points. You might not be able to find the home you want.

Home Prices Are Already Starting To Rise.

9. Prices of homes are already starting to rise. For example, Case-Shiller’s August prices were quoted in the press as being down 11.3%. But that was for the last 12 months since August 2008. Home prices actually went up at an annual rate of 14.4% for the last 4 months reported!

10. If you want to build a new home, it takes 8-to-9 months from contract to completion; so, as we already mentioned, you are almost out of time.

Long story short, it’s an incredible buying opportunity that will likely never be seen again in our lifetimes.

The sky is always darkest before dawn.

So, get ready. Get set. Buy!