September Gains Were Not A Sign Of A Housing Recovery
The jump in the number of resale homes sold nationally in September is welcome news to a battered U.S. housing market. Sales of existing homes of all types were up 5.5% nationally for the month to a seasonally adjusted annual rate (SAAR) of 5.18 million units, up 1.4% from the same month last year. Single-family home sales were up 6.2% to a SAAR of 4.62 million, 3.8% above the pace of last September.
This is the first year-over-year sales gain since November, 2005. According to the National Association of Realtors (NAR), 35-40% of those sales were foreclosed or distressed properties - and 80% of those buyers intended to live in the homes they bought.
At first blush, these numbers look promising - but what the media fails to analyze is how changes in financing is responsible, in part, for these gains. The housing bill that was passed into law in July banned down payment assistance programs, and virtually all lenders immediately canceled those programs for loans that would not fund by September 30, 2008. Buyers who needed to take advantage of these programs moved quickly to ensure that they could buy their homes.
At the same time, foreclosure filings continued to rise in September - and the tsunami of subprime loans has not yet subsided. Many experts believe that by the end of the year, between a quarter to a third of all homes for sale are going to be foreclosures - thus keeping the housing market depressed through 2009. Currently, the absorption rate gives the U.S. a 10 month supply of homes.
Keep in mind that many of those foreclosed home sales in September were based upon contracts written in July and August - and at that time, we had not yet experienced the credit crisis. Add to that a stock market going from a bear market to a world-wide meltdown, and you can see why this writer does not see much light at the end of the tunnel - at least as far as sellers are concerned.
In the long term, I am bullish for both the stock market and the housing market. No one can predict the bottoms of either markets - but we can recognize when markets are depressed and where opportunities can be exploited. The first part of the equation of buying low and selling high - is buying low… and this market provides that opportunity.
For example, I have recently discovered great opportunites from both low-end as well as high-end properties here in the greater Atlanta area. Some of the recent properties I have found include a condo that can be bought for $40K in a community where the rents are around $700 a month… or a single family home that is only a couple of years old with comparables in the $500-550K range - with a current list price of $360K.
Many homes in the 2006 price range of $400K to $600K are now getting killed from oversupply. These homes were built to accommodate the demand from buyers who were able to use slick financing schemes to finance homes that would otherwise be out of their reach - and builders were more than happy to satisfy that demand. Many of these same homes are now selling for a steep discount, as those types of loans are no longer available. If you can afford a home in the $300-400K price range, NOW is the time to take advantage of these values.
Although a recession is looming, and the upside of the housing market a few years away, the real gains may be realized by buyers who are able to take advantage of both today’s prices - and today’s relatively low interest rates. Many financial analysts predict a rise in long-term fixed mortgage rates, which means that buyers who lock in todays rates AND depressed prices may be the smartest real estate investors of all.
As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.