May 2011
May 31, 2011
Economics Group Special Commentary Mark Vitner, Senior Economist [email protected] ● (704) 383-5635
Anika R. Khan, Economist [email protected] ● (704) 715-0575
Joe Seydl, Economic Analyst [email protected] ● (704) 715-1488
Housing Chartbook: May 2011 When Will Housing Catch A Break?
The most recent round of housing data is clearly disappointing. Home sales remain exceptionally weak, single-family home construction is still essentially dead in the water and home prices are continuing to slide amid a glut of foreclosures. To make matters worse, all of this is occurring at a time when interest rates are exceptionally low and monetary and fiscal policies have been unusually supportive. The road will not get much easier. Monetary and fiscal policies are set to tighten, as the Fed’s quantitative easing comes to and end in June and federal, state and local budgets tighten. Nevertheless, interest rates should remain relatively low as overall economic growth is expected to remain sluggish for the next few years.
The most recent round of housing data is clearly disappointing.
Low mortgage rates and near record housing affordability are just about the only things going right for housing right now. Household formations are still lagging amid a dreadfully slow recovery in employment. Mortgage underwriting remains unusually tight, and conservative appraisals are making it difficult for potential trade-up buyers—and those wishing to relocate to stronger job markets—to sell their current home at an acceptable price. Falling home prices and the widespread reporting on the foreclosure crisis are adding to buyers’ uneasiness, keeping many potential buyers on the sidelines and widening the gap between what buyers are willing to pay and what sellers are willing to take. Conditions look like they will worsen. Uncertainty about how many homes remain in the foreclosure pipeline and how and when they will be dealt with continues to put pressure on home prices. Nearly all of the major home price measures fell during the past month. The Case-Shiller 10-city composite fell 0.1 percent in March and is now down 31.8 percent from its April 2006 peak. A similar index produced by CoreLogic shows prices falling 1.4 percent in March and down 34.1 percent from its April 2006 peak. We continue to expect prices to slide an additional 5 percent to 8 percent by the end of this year. Figure 2
Figure 1
Existing & New Single Family Home Sales
S&P Case-Shiller Composite-10 Home Price Index Year-over-Year Percentage Change 24%
24%
20%
20%
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
-8%
-8%
-12%
-12%
-16%
-16%
-20%
-24%
-24%
Source:
90
92
94
96
98
00
02
04
06
08
10
8.0 7.0
1.2
6.0
1.0
5.0 0.8 4.0 0.6 3.0 0.4
2.0
0.2
1.0
New Home Sales: Mar @ 300 Thousand (Left Axis)
-20%
S&P Case-Shiller Composite-10: Mar @ -2.9% 88
Seasonally Adjusted Annual Rate - In Millions
1.4
Existing Home Sales: Apr @ 4.4 Million (Right Axis) 0.0
0.0 94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
S&P, National Association of Realtors, U.S. Department of Commerce and Wells Fargo Securities, LLC
This report is available on wellsfargo.com/research and on Bloomberg WFEC
10
11
Uncertainty about how many homes remain in the foreclosure pipeline and how and when they will be dealt with continues to put pressure on home prices.
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
The decline in prices may not follow a straight path. Delays in the foreclosure process could lead to a temporary respite in the recent slide in home prices. Both the number of foreclosure starts and sales declined sharply in April, despite an extremely bloated pipeline of homes in the foreclosure process. The drop likely reflects the impasse between the state attorneys general, federal officials and major mortgage lenders on possible reforms to the foreclosure process and potential penalties to some mortgage lenders. Delays in the foreclosure process will likely push the housing recovery further out.
Delays in the foreclosure process will likely push the housing recovery further out. According to LPS Applied Analytics, there are currently 2.2 million homes in the process of foreclosure and another 2 million mortgages 90 days or more past due. An additional 2.2 million mortgages are 90 days or less past due. Of those loans 90 days or more past due, some 800,000 have not made a payment in over a year. Cure rates for seriously delinquent loans are extremely low and most will eventually wind up in foreclosure. The current impasse simply delays the inevitable and pushes out the timetable for a true recovery in home sales and new home construction. We have noted previously that every home in foreclosure does not need to be sold before prices stabilize. Our best guess, however, is at least a third of these properties will need to be sold before home prices find a bottom. This means that even if a settlement can be reached in the next few weeks and the foreclosure process can be restarted, it remains far from certain whether home prices will bottom before the start of the key spring 2012 selling season. Another important question is what will happen to mortgage rates once the second round of the Fed’s quantitative easing (QE2) winds down at the end of June. The Fed has been expanding its balance sheet by purchasing $600 billion in additional Treasury notes since the November 2010 election and also continuing to reinvest the proceeds of maturing securities. Following the end of the Fed’s first round of QE, interest rates fell and the spread between the 30-year conventional mortgage and the 10-year Treasury widened. This go round, we expect Treasury yields to rise and the spread to once again widen, yielding higher mortgage rates. Moreover, we would expect to see the Jumbo-Conforming mortgage rate spread widen.
While we still see home sales and new home construction on a gradually rising trajectory, the ascent is just a bit more gradual than we thought previously.
We have reduced our expectations for home sales and new home construction. A growing backlash against homeownership, combined with persistently high unemployment, sluggish household growth and continued uncertainty about what will ultimately become of Fannie Mae and Freddie Mac have caused us to lower our longer-term outlook for housing. This is not to say there is no improvement. We are beginning to see home sales and new home construction pick up in a few communities in a handful of major metropolitan areas. A modest pickup in job growth combined with tight underwriting standards has also cut into the number of early-stage mortgage delinquencies. That said, demand for new and existing homes, aside for distressed transactions, remains exceptionally weak, and the latest 11.6 percent drop in pending home sales casts an ominous cloud over sales for the next few months. Figure 3
Figure 4 Housing Starts
Homeownership Rate
Millions of Units 2.4
2.4
2.1
2.1
1.8
1.8
1.5
Forecast
1.5
1.2
1.2
0.9
0.9
0.6
0.6
0.3
0.3
0.0
0.0
Percent
70%
70%
68%
68%
66%
66%
64%
64%
62%
62% Homeownership Rate: Q1 @ 66.4%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source:
2
60%
60% 65
70
U.S. Department of Commerce and Wells Fargo Securities, LLC
75
80
85
90
95
00
05
10
3.25 3.26 5.04 4.71
216.7 -6.6 172.5 -12.9 -4.6 -12.9
373.9 5148.5 4559.2 589.3
554.3 442.3 112.0
-2.6 -4.4 9.3
2009
3.25 3.22 4.69 3.78
222.6 2.7 172.7 0.1 -2.9 2.2
321.7 4917.0 4310.8 606.2
585.4 471.5 113.9
2.9 -0.7 9.6
2010
3.25 3.27 4.74 3.60
214.0 -3.9 162.5 -5.9 -3.9 -6.7
325.0 5200.0 4530.0 670.0
600.0 476.0 124.0
Labor and Wells Fargo Securities, LLC
2.3 1.2 8.6
4.19 3.83 5.33 3.90
214.8 0.4 164.0 0.9 0.4 0.5
385.0 5400.0 4700.0 700.0
760.0 570.0 190.0
2.5 1.6 7.8
Forecast 2011 2012
Source: Federal Reserve Board, FHFA, MBA, NAR, S&P C orp., U.S. Department of C ommerce, U.S. Department of
Forecast as of: May 31, 2011
4.88 3.66 6.04 5.18
232.1 -4.8 198.1 -9.2 -6.1 -16.7
Home Prices Median New Home, $ Thousands Percent Change Median Existing Home, $ Thousands Percent Change FHFA (OFHEO) Home Price Index (Purch Only), Pct Chg Case-Shiller C-10 Home Price Index, Percent Change
Interest Rates - Annual Averages Prime Rate Ten-Year Treasury Note Conventional 30-Year Fixed Rate, Commitment Rate One-Year ARM, Effective Rate, Commitment Rate
482.2 4892.0 4336.7 555.3
900.0 616.3 283.7
Home Construction Total Housing Starts, in thousands Single-Family Starts, in thousands Multi-Family Starts, in thousands
Home Sales New Home Sales, Single-Family, in thousands Total Existing Home Sales, in thousands Existing Single-Family Home Sales, in thousands Existing Condominium & Townhouse Sales, in thousands
0.0 -0.6 5.8
Real GDP, percent change Nonfarm Employment, percent change Unemployment Rate
2008
National Housing Outlook
Housing Chartbook: May 2011 May 31, 2011 WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
3
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Conventional 30-Year Mortgage Rate
Mortgages
Mortgage rates pulled back a bit in May, with the rate on a 30-year fixed mortgage falling 20 basis points to 4.6 percent. Lower mortgage rates have helped boost mortgage purchase application activity, which is up 4.8 percent since late April. Mortgage applications for refinancing have also picked up in recent weeks.
Despite mortgage rates trending back down to their lowest level in nearly six months, homebuying activity remains sluggish. Borrower qualifications remain tight, and falling home prices continue to increase down payment requirements.
6.5%
6.0%
6.0%
5.5%
5.5%
5.0%
5.0%
4.5%
4.5% Conventional 30-Year Fixed Mortg. Rate: May @ 4.6%
4.0% 2004
4.0% 2005
500
400
300
300
200
200
100
Weekly Figure: May-20 @ 191.4 Up From 188.6 on May-13 Mort. Appl.: 8-Week Average: May 20 @ 192.9 8-Week Average Down 20.8% From Same Period Last Year
0 96
97
98
99
00
01
02
03
04
05
06
07
08
09
2008
2009
2010
2011
Mortgage Applications 60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0% 2005
10
0% 2006
2007
2008
2009
2010
2011
New Home Sales vs. Mortgage Applications
0 95
2007
ARMs Percent of Loan Applications (Value): May 20 @ 12.2% ARMs Percent of Loan Applications (Volume): May 20 @ 6.3%
400
100
2006
8-Week Moving Average, Seasonally Adjusted
60%
Seasonally Adjusted Index, 1990=100
500
7.0%
6.5%
We expect a gradual pickup in mortgage rates in the second half of the year, with more meaningful acceleration in 2012 when the Fed begins to tighten.
Mortgage Applications for Purchase
94
Percent, FHLMC Fixed-Rate Mortgage
7.0%
11
Month-over-Month Percent Change 30%
30%
15%
15%
Mortgage Applications for Refinancing 4-Week Moving Average, Seasonally Adjusted
12,000
12,000
Weekly Figure: May-20 @ 2,592 Up from 2,568 on May-13 4-Week Average: May-20 @ 2,378 4-Week Average Up 0.2% from Same Period Last Year
10,000
10,000
8,000
8,000
6,000
6,000
0%
0%
-15%
-15%
-30%
4,000
4,000
2,000
2,000
0
0 94
4
96
98
00
02
04
06
08
10
-30% New Home Sales: Apr @ 7.3% Mortgage Applications for Purchase: May @ 0.7%
-45% Jan-09
-45% Jul-09
Jan-10
Jul-10
Jan-11
Source: Mortgage Bankers Association, FHLMC, U.S. Department of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Private Single-Family Construction Spending
Single-Family Construction
Percent
Single-family housing starts have remained near historical lows for a little more than two years as builders continue to face tough competition from foreclosures. The elevated proportion of distressed sales continues to put downward pressure on existing home prices, widening the discount that existing homes sell for relative to new homes. Single-family housing permits are down 18.6 percent on a year-ago basis, but the pace of decline is slowing. The recent slide in permits suggests starts will remain depressed.
80%
80%
60%
60%
40%
40%
20%
20% 0%
0% -20%
-20%
-40%
-40% 3-Month Annual Rate: Mar @ -4.4%
-60%
-80%
-80% 94
96
98
SAAR, In Millions, 3-Month Moving Average
00
02
04
06
08
10
Single-Family Housing Starts SAAR, In Millions, 3-Month Moving Average
2.0
Single-Family Building Permits
-60%
Year-over-Year Percent Change: Mar @ -9.4%
The NAHB/Wells Fargo Housing Market Index has remained virtually unchanged for the past seven months. With little buyer traffic, builders are remaining extremely cautious.
2.0
100%
100%
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.4
0.4 Single-family Housing Starts: Apr @ 399K
0.2
0.2 90
92
94
96
98
00
02
04
06
08
10
Single-family Building Permits: Apr @ 386K 0.2
0.2 90
92
94
96
98
00
02
04
06
08
NAHB/Wells Fargo Housing Market Index
10
Diffusion Index
90
Single-Family Housing Completions
90
80
80
2.0
70
70
1.8
1.8
60
60
1.6
1.6
50
50
1.4
1.4
40
40
1.2
1.2
30
30
1.0
1.0
20
20
0.8
0.8
0.6
0.6
Seasonally Adjusted Annual Rate, In Millions
2.0
10
10 NAHB Housing Market Index: May @ 16.0
0
0 87
89
91
93
95
97
99
01
03
05
07
09
11
0.4
0.4 Single-family Housing Completions: Apr @ 420K
0.2
0.2 87
89
91
93
95
97
99
01
03
05
07
09
11
Source: National Association of Home Builders, U.S. Department of Commerce and Wells Fargo Securities, LLC
5
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Multifamily Housing Starts
Multifamily Construction
SAAR, In Thousands, 3-Month Moving Average
500
The decline in homeownership is fueling a rebound in the rental housing market, which has pulled apartment vacancy rates sharply lower and boosted rents. Apartment absorption has increased for seven consecutive quarters, helping drive the vacancy rate down 1.8 percentage points over the past year to 6.2 percent since peaking at 8.0 percent in 2009. Consequently, starts of new multifamily projects are expected to rise nearly 10 percent in 2011. Multifamily permits are up 4.4 percent from a year ago, which continues to support the notion of a full recovery in apartment demand. While housing affordability remains near all-time highs, homeownership looks less attractive, particularly for younger workers.
400
400
300
300
200
200
100
100 Multifamily Housing Starts: Apr @ 143K
0
0 90
92
94
96
98
00
02
04
06
08
10
Multifamily Building Permits SAAR, In Thousands, 3-Month Moving Average
600
Private Multifamily Construction Spending
500
600
Percent 100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
500
500
400
400
300
300
200
200
100
100
0%
-20%
-20%
-40%
-40% 3-Month Annual Rate: Mar @ -18.1%
-60%
-60%
Multifamily Building Permits: Apr @ 167K 0
0 90
92
94
96
98
00
02
04
06
08
10
Year-over-Year Percent Change: Mar @ -13.2% -80%
Apartment Supply & Demand
-80% 94
96
98
00
02
04
06
08
10
Percent, Thousands of Units
16%
Housing Vacancies Millions of Units
7.0
12%
75
8%
50
4%
25
0%
0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
-4%
-25 Apartment Net Completions: Q1 @ 6,012 Units (Right Axis)
-8%
1.0
Apartment Vacancy Rate: Q1 @ 6.2% (Left Axis)
-12%
-75
Vacant for Rent: Q1 @ 4.1M 0.0
0.0 01
02
03
04
05
06
07
08
09
1.0
Vacant for Sale: Q1 @ 2.0M
06
07
08
09
10
11
-50
Apartment Net Absorption: Q1 @ 44,068 Units (Right Axis)
05
6
100
Source: U.S. Department of Commerce, REIS Inc. and Wells Fargo Securities, LLC
10
11
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Housing Affordability, NAR-Home Sales
Buying Conditions
Base = 100
210
Affordability in the housing market remains at an all-time high; however, affordability continues to vary by region. Buying conditions remain favorable in many Southeastern metro areas, such as Orlando, Tampa and Atlanta, whereas renting conditions remain favorable in some parts of the West, including San Francisco, San Diego and Seattle. Cash buyers continue to chase discounts in the housing market. A large portion of cash buyers have been international investors, particularly from South America and Canada, taking advantage of the weak U.S. dollar. The prevalence of cash buyers in the housing market is an encouraging sign, but the discounts cash buyers are receiving continues to drive average and median home prices lower.
210
180
180
150
150
120
120
Housing Affordability Index: Mar @ 187.8 6-Month Moving Average: Mar @ 186.8 90
90 92
94
96
98
00
02
04
06
08
10
Net Percent of Banks Tightening Standards Mortgages for Individuals 100%
100%
Confidence: Plans to Buy a Home Percent of Consumers, Conference Board
All Mortgages (Through Q1-2007) Prime Mortgages: Q2 @ 0.0% Nontraditional Mortgages: Q2 @ 10.0% Subprime Mortgages: Q1 @ 50.0%
12.0%
80%
10.0%
60%
60%
8.0%
8.0%
40%
40%
6.0%
6.0%
20%
20%
4.0%
4.0%
2.0%
2.0%
12.0%
80%
Plans to Buy a Home Within Six Months: Apr @ 5.5% 10.0%
0.0% 1991
0%
0%
-20% 1990
-20% 1994
0.0% 1993
1995
1997
1999
2001
2003
2005
2007
2009
1998
NAHB Expected Buyer Traffic Percent
2006
2010
10-Year Treasury Yield
2011
Percent
5.5%
70%
2002
5.5%
5.0%
5.0%
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
2.5%
2.5% 10-Year Yield: May @ 3.36% 2.0% 2004
2.0% 2005
2006
2007
2008
2009
2010
2011
10%
10% Traffic of Expected Buyers: May @ 14.0%
0%
0% 87
90
93
97
00
03
07
10
Source: Federal Reserve Board, NAHB, NAR, University of Michigan and Wells Fargo Securities, LLC
7
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
New Home Sales
New Home Sales
New home sales rose for the second consecutive month in April. While we continue to expect modest gains, any recovery in housing activity will be slow as sales remain at extremely depressed levels.
One of the major obstacles builders confront is the sharp drop in existing home prices, which has significantly widened the gap between the median price of a new home versus an existing home. With the premium for a new home nearly 30 percent, builders are seeking out niches.
Seasonally Adjusted Annual Rate, In Thousands
1,500
With very little incentive to ramp up construction activity, the overall inventory of new homes fell to 174,000 units in April, the lowest level on record. The drop in inventory brought the months’ supply down to 6.5 months.
1,300
1,300
1,100
1,100
900
900
700
700
500
500
300
Non-Seasonally Adjusted
300
New Home Sales: Apr @ 323,000 3-Month Moving Average: Apr @ 300,667
100
100 89
91
93
95
97
99
01
03
05
07
09
11
Inventory of New Homes for Sale New Homes for Sale at End of Month, In Thousands
600
Percentage of New Homes Completed in Inventory
1,500
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
50%
50% New Homes Completed in Inventory: Apr @ 38.5% 45%
45%
40%
40%
35%
35%
30%
30%
200
200 New Homes for Sale: Apr @ 174,000
25%
25%
150
150 97
98
99
20%
20% 90
92
94
96
98
00
02
04
06
08
00
01
Inventory of New Homes for Sale New Homes for Sale at End of Month, 2002=100
180
200
05
06
07
08
09
10
11
Seasonally Adjusted
14
12
12
10
10
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
8
8
6
6
4
4 Months' Supply: Apr @ 6.5 2
2 90
92
94
96
98
00
02
04
06
08
10
20 97
8
04
220
Northeast: Apr @ 70.4 Midwest: Apr @ 35.2 South: Apr @ 64.8 West: Apr @ 51.4
200
03
Months' Supply of New Homes
10 14
220
02
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Source: U.S. Dept. of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Existing Home Resales
Existing Home Sales
7.5
Sales of existing homes continue to be dominated by foreclosures, short sales and bank-owned properties. According to the National Association of Realtors, sales of distressed transactions were 37 percent in April. With existing home prices down 29.3 percent from its peak, the proportion of all-cash and investor transactions continues to increase, which suggests a bottom is near. The inventory of existing single-family homes for sale was 3.32 million in April, which was the highest in seven months. Rising inventories, the large number of homes in the foreclosure process and the growing foreclosure pipeline will continue to put downward pressure on prices. The median price of an existing home is now only $163,700.
Year-over-Year Percent Change
40%
30%
30%
20%
20%
10%
10%
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0 Existing Home Sales: Apr @ 5.05 Million
3.5 1999
3.5 2001
2003
2005
2007
2009
2011
Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions
7.0
Pending Home Sales Index 40%
Seasonally Adjusted Annual Rate - In Millions
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
0%
0%
-10%
-10%
-20%
-20%
Existing Home Sales: Apr @ 4.4 Million 2.0
2.0 86
88
90
92
94
96
98
00
02
04
06
08
10
Year-over-Year Change: Mar @ -11.4% -30% 2002
-30% 2003
2004
2005
2006
2007
2008
2009
2010
Existing Condominium Resales
2011
Seasonally Adjusted Annual Rate - In Thousands
1,000
Single-Family Home Inventory Millions of Units
4.5
1,000
900
900
800
800
700
700
600
600
500
500
4.5
New Homes: Mar @ 0.18M 4.0
4.0
Existing Homes: Apr @ 3.32M
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Condo Sales: Apr @ 630,000 400
400 99
01
02
03
04
05
06
07
08
09
10
11
0.5
0.5 0.0 1992
00
0.0 1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: National Assoc. of Realtors and Wells Fargo Securities, LLC
9
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP S&P Case-Shiller Home Prices
Home Prices
Percent Decline from Local Market Peak
Home prices are expected to continue to decline through the year, eventually bringing the peak-totrough decline for home prices down 38 percent. While there is much talk about a double dip in home prices, the recent down shift is now simply reflecting the weakened underlying fundamentals in the housing sector following the ending of many fiscal stimulus programs. Price declines vary across regions. States with the highest proportion of seriously delinquent mortgages, underwater mortgages and high vacancy rates are seeing the largest price declines. Much of this troubled inventory is concentrated in a handful of states, with Florida, Arizona, Nevada, California, Georgia, Illinois and Michigan heading the list.
10.7% 14.1% 19.2% 21.3% 21.6% 24.2% 27.1% 27.9% 28.9% 30.9% 34.4% 38.3% 38.5% 38.8% 40.6%
Dallas Denver Boston Charlotte Cleveland New York City Washington Atlanta Portland Seattle Chicago Minneapolis San Diego Los Angeles San Francisco Tampa Detroit Miami Phoenix Las Vegas
46.6% 47.2% 51.1% 55.9% 58.6% 33.0% 33.1%
C-10 C-20 0%
5%
10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%
S&P Case-Shiller National Home Price Index, NSA Bars = Q/Q % Change
Average and Median New Home Sale Price In Thousands
$350
$350
Line = Yr/Yr % Change
18%
6%
12%
4%
6%
2%
0%
0%
-6%
-2%
-12%
-4%
$300
$300
$250
$250
$200
$200 -18%
$150
$150
National Home Price Index: Q1 @ -5.1% (Left Axis)
-8%
-24% 88
Average Sales Price: Apr @ $268,900 Median New Sales Price: Apr @ $217,900
90
92
$100
$100 97
98
99
00
01
02
03
04
05
06
07
08
09
10
$300
$300
$250
$250
$200
$200
$150
$150
96
98
00
02
04
06
08
10
Non-Seasonally Adjusted, Year-over-Year Percent Change
14%
In Thousands
94
FHFA Home Price Indices
11
Existing Single-Family Home Prices
-6%
National Home Price Index: Q1 @ -4.2% (Right Axis)
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6% Home Price Index: Q1 @ -3.1%
-8%
-8%
Purchase-Only Index: Q1 @ -5.6%
-10%
$100
$100
-10% 92
94
96
98
00
02
04
06
08
10
Average Sale Price: Apr @ $214,600 Median Sale Price: Apr @ $163,200 $50
$50 94
10
96
98
00
02
04
06
08
10
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Residential Investment
Renovation & Remodeling
20%
20%
10%
10%
The BuildFax Residential Remodeling Index rose 3.0 percent month-over-month in March to 98.0 — this was the highest level for remodeling activity in March since 2006.
0%
The recent string of tornadoes that slammed portions of the Midwest, including Alabama, Missouri and Oklahoma, as well as the recent flooding of the Mississippi River will result in increased rebuilding activity in these regions. The amount of federal assistance provided in the rebuilding effort, however, remains unclear as federal budget constraints may obstruct funding.
-10%
-10%
-20%
-20%
-30%
-30%
-40% -50% 1996
-50% 1998
$500
$500
$400
$400
$300
$300
$200
$200
$100
$100
2000
2002
2006
2008
2010
Q1-2011
Other 0.2%
New Building 36.8%
Improvements 46.7%
2004
2006
2008
Residential Investment
2010
Q1-2006
Brokers' Commissions 13.0%
Residential Improvements Year-over-Year Percent Change
40%
2004
Residential Investment
$0 1998
2002
$700 $600
1996
2000
$800
$600
1994
-40%
Improvements: Q1 @ 5.2% Res. Investment Ex. Improvements: Q1 @ -8.2%
$900
Other: Q1 @ $0.8 Brokers' Commissions: Q1 @ $52.4 Improvements: Q1 @ $151.0 New Building: Q1 @ $119.0
$0 1992
0%
Brokers' Commissions 16.2%
Billions of Dollars
$900
$700
30%
Remodeling activity continues to gradually improve. Much of the remodeling activity currently taking place is tied to foreclosed properties.
Residential Investment
$800
Year-over-Year Percent Change
30%
Other 1.1%
40%
30%
30%
20%
20%
10%
10%
0%
0%
Improvements 21.4%
New Building 64.5%
-10%
-10%
-20%
-20% Residential Improvements: Mar @ -6.3%
-30%
-30% 94
96
98
00
02
04
06
08
10
Source: Joint Center for Housing Studies, U.S. Department of Commerce and Wells Fargo Securities, LLC
11
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP Negative Equity Mortgages - By State
Regional Housing Trends
Percent of Mortgages Outstanding, NSA 17.0%
Oregon
Negative equity remains widespread across many metro areas where the housing collapse was the greatest, including Nevada, Arizona and Florida. Prolonged negative equity in these regions continues to hurt labor mobility, which is adding to a higher structural unemployment rate in the United States. With the renewed slide in home prices, many metro areas are establishing new peak-to-trough lows. Home prices during the first quarter established new lows in Nevada, Arizona, Florida and California. Moreover, many regional home price measures do not capture cash-only transactions, which tend to occur at deep discounts. So regional home price measures might not be capturing the full influence of downward price pressure from increased foreclosures in recent months.
Mortgages in Foreclosure - By State As of Q1 2011
14.2%
19.8%
Colorado Rhode Island
21.2%
Utah
21.4%
Ohio
21.6%
Illinois
21.7%
Virginia
23.4%
Maryland
24.1% 24.8%
Idaho
30.2%
Georgia
31.8%
California
36.2%
Michigan
47.3%
Florida
50.9%
Arizona
65.4%
Nevada 23.1%
United States 0%
20%
40%
16%
12% 10.1%
8%
4.0%
8% 6.5% 5.7%
4.2%
New York
4.3%
Tennessee
4.3%
Indiana
4.3%
Ohio
4.4% 4.8%
Maryland
5.0%
Rhode Island
5.1% 5.4%
Michigan
5.4%
Georgia
5.5% 5.9%
Arizona Florida
5.3%
4.5%
6.0%
California
5.2%
6.2% 8.3%
Nevada
4%
4%
United States
3.6% 0%
0%
0% United States
Florida
Nevada
New Jersey
Illinois
Arizona
Maine
3%
6%
Percent, NSA 2.5%
Percent Change Peak to Trough, SA Arizona
Florida California
Idaho
Michigan Oregon 0%
0%
-10%
-10%
As of Q1 2011
2.7%
Indiana
FHFA/OFHEO Home Price Index - By State Nevada
Oklahoma
2.9%
Michigan
2.9%
Alabama
2.9%
South Carolina
2.9%
Rhode Island
3.0%
Connecticut
3.1%
Oregon
3.1%
Georgia
3.3%
Arizona
3.3% 3.4%
Illinois
-20%
-20%
-19.3% -27.0%
-30% -32.4%
-47.5%
-50%
12
-30%
-55.9%
-45.6%
-45.2%
3.5%
Ohio
3.6%
Tennessee Maryland
3.8%
Florida
3.8%
Idaho
4.4%
United States
-40%
-40%
-60%
-30.1%
9%
Homeowner Vacancy Rate - By State
New York Nevada
United States
As of Q1 2011
4.1%
Massachusetts
Mississippi
7.3%
80%
Percent of Mortgages Outstanding, NSA Alabama
Illinois
12%
60%
Mortgages 90+ Days Past Due - By State New Jersey
Percent of Loans in Foreclosure Process at End of Quarter, NSA 16%
As of Q4 2010
18.5%
New Hampshire
2.6% 0%
1%
2%
3%
4%
5%
-50%
-60%
Source: FHFA, CoreLogic, Mortgage Bankers Association, U.S. Department of Commerce and Wells Fargo Securities, LLC
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research (704) 715-8437 & Economics (212) 214-5070
[email protected]
Paul Jeanne
Associate Director of Research & Economics
(443) 263-6534
[email protected]
John E. Silvia, Ph.D.
Chief Economist
(704) 374-7034
[email protected]
Mark Vitner
Senior Economist
(704) 383-5635
[email protected]
Jay Bryson, Ph.D.
Global Economist
(704) 383-3518
[email protected]
Scott Anderson, Ph.D.
Senior Economist
(612) 667-9281
[email protected]
Eugenio Aleman, Ph.D.
Senior Economist
(704) 715-0314
[email protected]
Sam Bullard
Senior Economist
(704) 383-7372
[email protected]
Anika Khan
Economist
(704) 715-0575
[email protected]
Azhar Iqbal
Econometrician
(704) 383-6805
[email protected]
Ed Kashmarek
Economist
(612) 667-0479
[email protected]
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Economist
(704) 374-4407
[email protected]
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Economist
(704) 715-0569
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Economic Analyst
(704) 715-1030
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Economic Analyst
(704) 715-1488
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Economic Analyst
(704) 374-7142
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Joe Seydl, Economic Analyst [email protected] ● (704) 715-1488
Housing Chartbook: May 2011 When Will Housing Catch A Break?
The most recent round of housing data is clearly disappointing. Home sales remain exceptionally weak, single-family home construction is still essentially dead in the water and home prices are continuing to slide amid a glut of foreclosures. To make matters worse, all of this is occurring at a time when interest rates are exceptionally low and monetary and fiscal policies have been unusually supportive. The road will not get much easier. Monetary and fiscal policies are set to tighten, as the Fed’s quantitative easing comes to and end in June and federal, state and local budgets tighten. Nevertheless, interest rates should remain relatively low as overall economic growth is expected to remain sluggish for the next few years.
The most recent round of housing data is clearly disappointing.
Low mortgage rates and near record housing affordability are just about the only things going right for housing right now. Household formations are still lagging amid a dreadfully slow recovery in employment. Mortgage underwriting remains unusually tight, and conservative appraisals are making it difficult for potential trade-up buyers—and those wishing to relocate to stronger job markets—to sell their current home at an acceptable price. Falling home prices and the widespread reporting on the foreclosure crisis are adding to buyers’ uneasiness, keeping many potential buyers on the sidelines and widening the gap between what buyers are willing to pay and what sellers are willing to take. Conditions look like they will worsen. Uncertainty about how many homes remain in the foreclosure pipeline and how and when they will be dealt with continues to put pressure on home prices. Nearly all of the major home price measures fell during the past month. The Case-Shiller 10-city composite fell 0.1 percent in March and is now down 31.8 percent from its April 2006 peak. A similar index produced by CoreLogic shows prices falling 1.4 percent in March and down 34.1 percent from its April 2006 peak. We continue to expect prices to slide an additional 5 percent to 8 percent by the end of this year. Figure 2
Figure 1
Existing & New Single Family Home Sales
S&P Case-Shiller Composite-10 Home Price Index Year-over-Year Percentage Change 24%
24%
20%
20%
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
-8%
-8%
-12%
-12%
-16%
-16%
-20%
-24%
-24%
Source:
90
92
94
96
98
00
02
04
06
08
10
8.0 7.0
1.2
6.0
1.0
5.0 0.8 4.0 0.6 3.0 0.4
2.0
0.2
1.0
New Home Sales: Mar @ 300 Thousand (Left Axis)
-20%
S&P Case-Shiller Composite-10: Mar @ -2.9% 88
Seasonally Adjusted Annual Rate - In Millions
1.4
Existing Home Sales: Apr @ 4.4 Million (Right Axis) 0.0
0.0 94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
S&P, National Association of Realtors, U.S. Department of Commerce and Wells Fargo Securities, LLC
This report is available on wellsfargo.com/research and on Bloomberg WFEC
10
11
Uncertainty about how many homes remain in the foreclosure pipeline and how and when they will be dealt with continues to put pressure on home prices.
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
The decline in prices may not follow a straight path. Delays in the foreclosure process could lead to a temporary respite in the recent slide in home prices. Both the number of foreclosure starts and sales declined sharply in April, despite an extremely bloated pipeline of homes in the foreclosure process. The drop likely reflects the impasse between the state attorneys general, federal officials and major mortgage lenders on possible reforms to the foreclosure process and potential penalties to some mortgage lenders. Delays in the foreclosure process will likely push the housing recovery further out.
Delays in the foreclosure process will likely push the housing recovery further out. According to LPS Applied Analytics, there are currently 2.2 million homes in the process of foreclosure and another 2 million mortgages 90 days or more past due. An additional 2.2 million mortgages are 90 days or less past due. Of those loans 90 days or more past due, some 800,000 have not made a payment in over a year. Cure rates for seriously delinquent loans are extremely low and most will eventually wind up in foreclosure. The current impasse simply delays the inevitable and pushes out the timetable for a true recovery in home sales and new home construction. We have noted previously that every home in foreclosure does not need to be sold before prices stabilize. Our best guess, however, is at least a third of these properties will need to be sold before home prices find a bottom. This means that even if a settlement can be reached in the next few weeks and the foreclosure process can be restarted, it remains far from certain whether home prices will bottom before the start of the key spring 2012 selling season. Another important question is what will happen to mortgage rates once the second round of the Fed’s quantitative easing (QE2) winds down at the end of June. The Fed has been expanding its balance sheet by purchasing $600 billion in additional Treasury notes since the November 2010 election and also continuing to reinvest the proceeds of maturing securities. Following the end of the Fed’s first round of QE, interest rates fell and the spread between the 30-year conventional mortgage and the 10-year Treasury widened. This go round, we expect Treasury yields to rise and the spread to once again widen, yielding higher mortgage rates. Moreover, we would expect to see the Jumbo-Conforming mortgage rate spread widen.
While we still see home sales and new home construction on a gradually rising trajectory, the ascent is just a bit more gradual than we thought previously.
We have reduced our expectations for home sales and new home construction. A growing backlash against homeownership, combined with persistently high unemployment, sluggish household growth and continued uncertainty about what will ultimately become of Fannie Mae and Freddie Mac have caused us to lower our longer-term outlook for housing. This is not to say there is no improvement. We are beginning to see home sales and new home construction pick up in a few communities in a handful of major metropolitan areas. A modest pickup in job growth combined with tight underwriting standards has also cut into the number of early-stage mortgage delinquencies. That said, demand for new and existing homes, aside for distressed transactions, remains exceptionally weak, and the latest 11.6 percent drop in pending home sales casts an ominous cloud over sales for the next few months. Figure 3
Figure 4 Housing Starts
Homeownership Rate
Millions of Units 2.4
2.4
2.1
2.1
1.8
1.8
1.5
Forecast
1.5
1.2
1.2
0.9
0.9
0.6
0.6
0.3
0.3
0.0
0.0
Percent
70%
70%
68%
68%
66%
66%
64%
64%
62%
62% Homeownership Rate: Q1 @ 66.4%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source:
2
60%
60% 65
70
U.S. Department of Commerce and Wells Fargo Securities, LLC
75
80
85
90
95
00
05
10
3.25 3.26 5.04 4.71
216.7 -6.6 172.5 -12.9 -4.6 -12.9
373.9 5148.5 4559.2 589.3
554.3 442.3 112.0
-2.6 -4.4 9.3
2009
3.25 3.22 4.69 3.78
222.6 2.7 172.7 0.1 -2.9 2.2
321.7 4917.0 4310.8 606.2
585.4 471.5 113.9
2.9 -0.7 9.6
2010
3.25 3.27 4.74 3.60
214.0 -3.9 162.5 -5.9 -3.9 -6.7
325.0 5200.0 4530.0 670.0
600.0 476.0 124.0
Labor and Wells Fargo Securities, LLC
2.3 1.2 8.6
4.19 3.83 5.33 3.90
214.8 0.4 164.0 0.9 0.4 0.5
385.0 5400.0 4700.0 700.0
760.0 570.0 190.0
2.5 1.6 7.8
Forecast 2011 2012
Source: Federal Reserve Board, FHFA, MBA, NAR, S&P C orp., U.S. Department of C ommerce, U.S. Department of
Forecast as of: May 31, 2011
4.88 3.66 6.04 5.18
232.1 -4.8 198.1 -9.2 -6.1 -16.7
Home Prices Median New Home, $ Thousands Percent Change Median Existing Home, $ Thousands Percent Change FHFA (OFHEO) Home Price Index (Purch Only), Pct Chg Case-Shiller C-10 Home Price Index, Percent Change
Interest Rates - Annual Averages Prime Rate Ten-Year Treasury Note Conventional 30-Year Fixed Rate, Commitment Rate One-Year ARM, Effective Rate, Commitment Rate
482.2 4892.0 4336.7 555.3
900.0 616.3 283.7
Home Construction Total Housing Starts, in thousands Single-Family Starts, in thousands Multi-Family Starts, in thousands
Home Sales New Home Sales, Single-Family, in thousands Total Existing Home Sales, in thousands Existing Single-Family Home Sales, in thousands Existing Condominium & Townhouse Sales, in thousands
0.0 -0.6 5.8
Real GDP, percent change Nonfarm Employment, percent change Unemployment Rate
2008
National Housing Outlook
Housing Chartbook: May 2011 May 31, 2011 WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
3
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Conventional 30-Year Mortgage Rate
Mortgages
Mortgage rates pulled back a bit in May, with the rate on a 30-year fixed mortgage falling 20 basis points to 4.6 percent. Lower mortgage rates have helped boost mortgage purchase application activity, which is up 4.8 percent since late April. Mortgage applications for refinancing have also picked up in recent weeks.
Despite mortgage rates trending back down to their lowest level in nearly six months, homebuying activity remains sluggish. Borrower qualifications remain tight, and falling home prices continue to increase down payment requirements.
6.5%
6.0%
6.0%
5.5%
5.5%
5.0%
5.0%
4.5%
4.5% Conventional 30-Year Fixed Mortg. Rate: May @ 4.6%
4.0% 2004
4.0% 2005
500
400
300
300
200
200
100
Weekly Figure: May-20 @ 191.4 Up From 188.6 on May-13 Mort. Appl.: 8-Week Average: May 20 @ 192.9 8-Week Average Down 20.8% From Same Period Last Year
0 96
97
98
99
00
01
02
03
04
05
06
07
08
09
2008
2009
2010
2011
Mortgage Applications 60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0% 2005
10
0% 2006
2007
2008
2009
2010
2011
New Home Sales vs. Mortgage Applications
0 95
2007
ARMs Percent of Loan Applications (Value): May 20 @ 12.2% ARMs Percent of Loan Applications (Volume): May 20 @ 6.3%
400
100
2006
8-Week Moving Average, Seasonally Adjusted
60%
Seasonally Adjusted Index, 1990=100
500
7.0%
6.5%
We expect a gradual pickup in mortgage rates in the second half of the year, with more meaningful acceleration in 2012 when the Fed begins to tighten.
Mortgage Applications for Purchase
94
Percent, FHLMC Fixed-Rate Mortgage
7.0%
11
Month-over-Month Percent Change 30%
30%
15%
15%
Mortgage Applications for Refinancing 4-Week Moving Average, Seasonally Adjusted
12,000
12,000
Weekly Figure: May-20 @ 2,592 Up from 2,568 on May-13 4-Week Average: May-20 @ 2,378 4-Week Average Up 0.2% from Same Period Last Year
10,000
10,000
8,000
8,000
6,000
6,000
0%
0%
-15%
-15%
-30%
4,000
4,000
2,000
2,000
0
0 94
4
96
98
00
02
04
06
08
10
-30% New Home Sales: Apr @ 7.3% Mortgage Applications for Purchase: May @ 0.7%
-45% Jan-09
-45% Jul-09
Jan-10
Jul-10
Jan-11
Source: Mortgage Bankers Association, FHLMC, U.S. Department of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Private Single-Family Construction Spending
Single-Family Construction
Percent
Single-family housing starts have remained near historical lows for a little more than two years as builders continue to face tough competition from foreclosures. The elevated proportion of distressed sales continues to put downward pressure on existing home prices, widening the discount that existing homes sell for relative to new homes. Single-family housing permits are down 18.6 percent on a year-ago basis, but the pace of decline is slowing. The recent slide in permits suggests starts will remain depressed.
80%
80%
60%
60%
40%
40%
20%
20% 0%
0% -20%
-20%
-40%
-40% 3-Month Annual Rate: Mar @ -4.4%
-60%
-80%
-80% 94
96
98
SAAR, In Millions, 3-Month Moving Average
00
02
04
06
08
10
Single-Family Housing Starts SAAR, In Millions, 3-Month Moving Average
2.0
Single-Family Building Permits
-60%
Year-over-Year Percent Change: Mar @ -9.4%
The NAHB/Wells Fargo Housing Market Index has remained virtually unchanged for the past seven months. With little buyer traffic, builders are remaining extremely cautious.
2.0
100%
100%
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.4
0.4 Single-family Housing Starts: Apr @ 399K
0.2
0.2 90
92
94
96
98
00
02
04
06
08
10
Single-family Building Permits: Apr @ 386K 0.2
0.2 90
92
94
96
98
00
02
04
06
08
NAHB/Wells Fargo Housing Market Index
10
Diffusion Index
90
Single-Family Housing Completions
90
80
80
2.0
70
70
1.8
1.8
60
60
1.6
1.6
50
50
1.4
1.4
40
40
1.2
1.2
30
30
1.0
1.0
20
20
0.8
0.8
0.6
0.6
Seasonally Adjusted Annual Rate, In Millions
2.0
10
10 NAHB Housing Market Index: May @ 16.0
0
0 87
89
91
93
95
97
99
01
03
05
07
09
11
0.4
0.4 Single-family Housing Completions: Apr @ 420K
0.2
0.2 87
89
91
93
95
97
99
01
03
05
07
09
11
Source: National Association of Home Builders, U.S. Department of Commerce and Wells Fargo Securities, LLC
5
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Multifamily Housing Starts
Multifamily Construction
SAAR, In Thousands, 3-Month Moving Average
500
The decline in homeownership is fueling a rebound in the rental housing market, which has pulled apartment vacancy rates sharply lower and boosted rents. Apartment absorption has increased for seven consecutive quarters, helping drive the vacancy rate down 1.8 percentage points over the past year to 6.2 percent since peaking at 8.0 percent in 2009. Consequently, starts of new multifamily projects are expected to rise nearly 10 percent in 2011. Multifamily permits are up 4.4 percent from a year ago, which continues to support the notion of a full recovery in apartment demand. While housing affordability remains near all-time highs, homeownership looks less attractive, particularly for younger workers.
400
400
300
300
200
200
100
100 Multifamily Housing Starts: Apr @ 143K
0
0 90
92
94
96
98
00
02
04
06
08
10
Multifamily Building Permits SAAR, In Thousands, 3-Month Moving Average
600
Private Multifamily Construction Spending
500
600
Percent 100%
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
500
500
400
400
300
300
200
200
100
100
0%
-20%
-20%
-40%
-40% 3-Month Annual Rate: Mar @ -18.1%
-60%
-60%
Multifamily Building Permits: Apr @ 167K 0
0 90
92
94
96
98
00
02
04
06
08
10
Year-over-Year Percent Change: Mar @ -13.2% -80%
Apartment Supply & Demand
-80% 94
96
98
00
02
04
06
08
10
Percent, Thousands of Units
16%
Housing Vacancies Millions of Units
7.0
12%
75
8%
50
4%
25
0%
0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
-4%
-25 Apartment Net Completions: Q1 @ 6,012 Units (Right Axis)
-8%
1.0
Apartment Vacancy Rate: Q1 @ 6.2% (Left Axis)
-12%
-75
Vacant for Rent: Q1 @ 4.1M 0.0
0.0 01
02
03
04
05
06
07
08
09
1.0
Vacant for Sale: Q1 @ 2.0M
06
07
08
09
10
11
-50
Apartment Net Absorption: Q1 @ 44,068 Units (Right Axis)
05
6
100
Source: U.S. Department of Commerce, REIS Inc. and Wells Fargo Securities, LLC
10
11
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Housing Affordability, NAR-Home Sales
Buying Conditions
Base = 100
210
Affordability in the housing market remains at an all-time high; however, affordability continues to vary by region. Buying conditions remain favorable in many Southeastern metro areas, such as Orlando, Tampa and Atlanta, whereas renting conditions remain favorable in some parts of the West, including San Francisco, San Diego and Seattle. Cash buyers continue to chase discounts in the housing market. A large portion of cash buyers have been international investors, particularly from South America and Canada, taking advantage of the weak U.S. dollar. The prevalence of cash buyers in the housing market is an encouraging sign, but the discounts cash buyers are receiving continues to drive average and median home prices lower.
210
180
180
150
150
120
120
Housing Affordability Index: Mar @ 187.8 6-Month Moving Average: Mar @ 186.8 90
90 92
94
96
98
00
02
04
06
08
10
Net Percent of Banks Tightening Standards Mortgages for Individuals 100%
100%
Confidence: Plans to Buy a Home Percent of Consumers, Conference Board
All Mortgages (Through Q1-2007) Prime Mortgages: Q2 @ 0.0% Nontraditional Mortgages: Q2 @ 10.0% Subprime Mortgages: Q1 @ 50.0%
12.0%
80%
10.0%
60%
60%
8.0%
8.0%
40%
40%
6.0%
6.0%
20%
20%
4.0%
4.0%
2.0%
2.0%
12.0%
80%
Plans to Buy a Home Within Six Months: Apr @ 5.5% 10.0%
0.0% 1991
0%
0%
-20% 1990
-20% 1994
0.0% 1993
1995
1997
1999
2001
2003
2005
2007
2009
1998
NAHB Expected Buyer Traffic Percent
2006
2010
10-Year Treasury Yield
2011
Percent
5.5%
70%
2002
5.5%
5.0%
5.0%
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
2.5%
2.5% 10-Year Yield: May @ 3.36% 2.0% 2004
2.0% 2005
2006
2007
2008
2009
2010
2011
10%
10% Traffic of Expected Buyers: May @ 14.0%
0%
0% 87
90
93
97
00
03
07
10
Source: Federal Reserve Board, NAHB, NAR, University of Michigan and Wells Fargo Securities, LLC
7
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
New Home Sales
New Home Sales
New home sales rose for the second consecutive month in April. While we continue to expect modest gains, any recovery in housing activity will be slow as sales remain at extremely depressed levels.
One of the major obstacles builders confront is the sharp drop in existing home prices, which has significantly widened the gap between the median price of a new home versus an existing home. With the premium for a new home nearly 30 percent, builders are seeking out niches.
Seasonally Adjusted Annual Rate, In Thousands
1,500
With very little incentive to ramp up construction activity, the overall inventory of new homes fell to 174,000 units in April, the lowest level on record. The drop in inventory brought the months’ supply down to 6.5 months.
1,300
1,300
1,100
1,100
900
900
700
700
500
500
300
Non-Seasonally Adjusted
300
New Home Sales: Apr @ 323,000 3-Month Moving Average: Apr @ 300,667
100
100 89
91
93
95
97
99
01
03
05
07
09
11
Inventory of New Homes for Sale New Homes for Sale at End of Month, In Thousands
600
Percentage of New Homes Completed in Inventory
1,500
600
550
550
500
500
450
450
400
400
350
350
300
300
250
250
50%
50% New Homes Completed in Inventory: Apr @ 38.5% 45%
45%
40%
40%
35%
35%
30%
30%
200
200 New Homes for Sale: Apr @ 174,000
25%
25%
150
150 97
98
99
20%
20% 90
92
94
96
98
00
02
04
06
08
00
01
Inventory of New Homes for Sale New Homes for Sale at End of Month, 2002=100
180
200
05
06
07
08
09
10
11
Seasonally Adjusted
14
12
12
10
10
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
8
8
6
6
4
4 Months' Supply: Apr @ 6.5 2
2 90
92
94
96
98
00
02
04
06
08
10
20 97
8
04
220
Northeast: Apr @ 70.4 Midwest: Apr @ 35.2 South: Apr @ 64.8 West: Apr @ 51.4
200
03
Months' Supply of New Homes
10 14
220
02
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Source: U.S. Dept. of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Existing Home Resales
Existing Home Sales
7.5
Sales of existing homes continue to be dominated by foreclosures, short sales and bank-owned properties. According to the National Association of Realtors, sales of distressed transactions were 37 percent in April. With existing home prices down 29.3 percent from its peak, the proportion of all-cash and investor transactions continues to increase, which suggests a bottom is near. The inventory of existing single-family homes for sale was 3.32 million in April, which was the highest in seven months. Rising inventories, the large number of homes in the foreclosure process and the growing foreclosure pipeline will continue to put downward pressure on prices. The median price of an existing home is now only $163,700.
Year-over-Year Percent Change
40%
30%
30%
20%
20%
10%
10%
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0 Existing Home Sales: Apr @ 5.05 Million
3.5 1999
3.5 2001
2003
2005
2007
2009
2011
Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions
7.0
Pending Home Sales Index 40%
Seasonally Adjusted Annual Rate - In Millions
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
0%
0%
-10%
-10%
-20%
-20%
Existing Home Sales: Apr @ 4.4 Million 2.0
2.0 86
88
90
92
94
96
98
00
02
04
06
08
10
Year-over-Year Change: Mar @ -11.4% -30% 2002
-30% 2003
2004
2005
2006
2007
2008
2009
2010
Existing Condominium Resales
2011
Seasonally Adjusted Annual Rate - In Thousands
1,000
Single-Family Home Inventory Millions of Units
4.5
1,000
900
900
800
800
700
700
600
600
500
500
4.5
New Homes: Mar @ 0.18M 4.0
4.0
Existing Homes: Apr @ 3.32M
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
Condo Sales: Apr @ 630,000 400
400 99
01
02
03
04
05
06
07
08
09
10
11
0.5
0.5 0.0 1992
00
0.0 1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: National Assoc. of Realtors and Wells Fargo Securities, LLC
9
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP S&P Case-Shiller Home Prices
Home Prices
Percent Decline from Local Market Peak
Home prices are expected to continue to decline through the year, eventually bringing the peak-totrough decline for home prices down 38 percent. While there is much talk about a double dip in home prices, the recent down shift is now simply reflecting the weakened underlying fundamentals in the housing sector following the ending of many fiscal stimulus programs. Price declines vary across regions. States with the highest proportion of seriously delinquent mortgages, underwater mortgages and high vacancy rates are seeing the largest price declines. Much of this troubled inventory is concentrated in a handful of states, with Florida, Arizona, Nevada, California, Georgia, Illinois and Michigan heading the list.
10.7% 14.1% 19.2% 21.3% 21.6% 24.2% 27.1% 27.9% 28.9% 30.9% 34.4% 38.3% 38.5% 38.8% 40.6%
Dallas Denver Boston Charlotte Cleveland New York City Washington Atlanta Portland Seattle Chicago Minneapolis San Diego Los Angeles San Francisco Tampa Detroit Miami Phoenix Las Vegas
46.6% 47.2% 51.1% 55.9% 58.6% 33.0% 33.1%
C-10 C-20 0%
5%
10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%
S&P Case-Shiller National Home Price Index, NSA Bars = Q/Q % Change
Average and Median New Home Sale Price In Thousands
$350
$350
Line = Yr/Yr % Change
18%
6%
12%
4%
6%
2%
0%
0%
-6%
-2%
-12%
-4%
$300
$300
$250
$250
$200
$200 -18%
$150
$150
National Home Price Index: Q1 @ -5.1% (Left Axis)
-8%
-24% 88
Average Sales Price: Apr @ $268,900 Median New Sales Price: Apr @ $217,900
90
92
$100
$100 97
98
99
00
01
02
03
04
05
06
07
08
09
10
$300
$300
$250
$250
$200
$200
$150
$150
96
98
00
02
04
06
08
10
Non-Seasonally Adjusted, Year-over-Year Percent Change
14%
In Thousands
94
FHFA Home Price Indices
11
Existing Single-Family Home Prices
-6%
National Home Price Index: Q1 @ -4.2% (Right Axis)
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6% Home Price Index: Q1 @ -3.1%
-8%
-8%
Purchase-Only Index: Q1 @ -5.6%
-10%
$100
$100
-10% 92
94
96
98
00
02
04
06
08
10
Average Sale Price: Apr @ $214,600 Median Sale Price: Apr @ $163,200 $50
$50 94
10
96
98
00
02
04
06
08
10
Source: FHFA, NAR, S&P Corp, U.S. Department of Commerce and Wells Fargo Securities, LLC
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Residential Investment
Renovation & Remodeling
20%
20%
10%
10%
The BuildFax Residential Remodeling Index rose 3.0 percent month-over-month in March to 98.0 — this was the highest level for remodeling activity in March since 2006.
0%
The recent string of tornadoes that slammed portions of the Midwest, including Alabama, Missouri and Oklahoma, as well as the recent flooding of the Mississippi River will result in increased rebuilding activity in these regions. The amount of federal assistance provided in the rebuilding effort, however, remains unclear as federal budget constraints may obstruct funding.
-10%
-10%
-20%
-20%
-30%
-30%
-40% -50% 1996
-50% 1998
$500
$500
$400
$400
$300
$300
$200
$200
$100
$100
2000
2002
2006
2008
2010
Q1-2011
Other 0.2%
New Building 36.8%
Improvements 46.7%
2004
2006
2008
Residential Investment
2010
Q1-2006
Brokers' Commissions 13.0%
Residential Improvements Year-over-Year Percent Change
40%
2004
Residential Investment
$0 1998
2002
$700 $600
1996
2000
$800
$600
1994
-40%
Improvements: Q1 @ 5.2% Res. Investment Ex. Improvements: Q1 @ -8.2%
$900
Other: Q1 @ $0.8 Brokers' Commissions: Q1 @ $52.4 Improvements: Q1 @ $151.0 New Building: Q1 @ $119.0
$0 1992
0%
Brokers' Commissions 16.2%
Billions of Dollars
$900
$700
30%
Remodeling activity continues to gradually improve. Much of the remodeling activity currently taking place is tied to foreclosed properties.
Residential Investment
$800
Year-over-Year Percent Change
30%
Other 1.1%
40%
30%
30%
20%
20%
10%
10%
0%
0%
Improvements 21.4%
New Building 64.5%
-10%
-10%
-20%
-20% Residential Improvements: Mar @ -6.3%
-30%
-30% 94
96
98
00
02
04
06
08
10
Source: Joint Center for Housing Studies, U.S. Department of Commerce and Wells Fargo Securities, LLC
11
Housing Chartbook: May 2011 May 31, 2011
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP Negative Equity Mortgages - By State
Regional Housing Trends
Percent of Mortgages Outstanding, NSA 17.0%
Oregon
Negative equity remains widespread across many metro areas where the housing collapse was the greatest, including Nevada, Arizona and Florida. Prolonged negative equity in these regions continues to hurt labor mobility, which is adding to a higher structural unemployment rate in the United States. With the renewed slide in home prices, many metro areas are establishing new peak-to-trough lows. Home prices during the first quarter established new lows in Nevada, Arizona, Florida and California. Moreover, many regional home price measures do not capture cash-only transactions, which tend to occur at deep discounts. So regional home price measures might not be capturing the full influence of downward price pressure from increased foreclosures in recent months.
Mortgages in Foreclosure - By State As of Q1 2011
14.2%
19.8%
Colorado Rhode Island
21.2%
Utah
21.4%
Ohio
21.6%
Illinois
21.7%
Virginia
23.4%
Maryland
24.1% 24.8%
Idaho
30.2%
Georgia
31.8%
California
36.2%
Michigan
47.3%
Florida
50.9%
Arizona
65.4%
Nevada 23.1%
United States 0%
20%
40%
16%
12% 10.1%
8%
4.0%
8% 6.5% 5.7%
4.2%
New York
4.3%
Tennessee
4.3%
Indiana
4.3%
Ohio
4.4% 4.8%
Maryland
5.0%
Rhode Island
5.1% 5.4%
Michigan
5.4%
Georgia
5.5% 5.9%
Arizona Florida
5.3%
4.5%
6.0%
California
5.2%
6.2% 8.3%
Nevada
4%
4%
United States
3.6% 0%
0%
0% United States
Florida
Nevada
New Jersey
Illinois
Arizona
Maine
3%
6%
Percent, NSA 2.5%
Percent Change Peak to Trough, SA Arizona
Florida California
Idaho
Michigan Oregon 0%
0%
-10%
-10%
As of Q1 2011
2.7%
Indiana
FHFA/OFHEO Home Price Index - By State Nevada
Oklahoma
2.9%
Michigan
2.9%
Alabama
2.9%
South Carolina
2.9%
Rhode Island
3.0%
Connecticut
3.1%
Oregon
3.1%
Georgia
3.3%
Arizona
3.3% 3.4%
Illinois
-20%
-20%
-19.3% -27.0%
-30% -32.4%
-47.5%
-50%
12
-30%
-55.9%
-45.6%
-45.2%
3.5%
Ohio
3.6%
Tennessee Maryland
3.8%
Florida
3.8%
Idaho
4.4%
United States
-40%
-40%
-60%
-30.1%
9%
Homeowner Vacancy Rate - By State
New York Nevada
United States
As of Q1 2011
4.1%
Massachusetts
Mississippi
7.3%
80%
Percent of Mortgages Outstanding, NSA Alabama
Illinois
12%
60%
Mortgages 90+ Days Past Due - By State New Jersey
Percent of Loans in Foreclosure Process at End of Quarter, NSA 16%
As of Q4 2010
18.5%
New Hampshire
2.6% 0%
1%
2%
3%
4%
5%
-50%
-60%
Source: FHFA, CoreLogic, Mortgage Bankers Association, U.S. Department of Commerce and Wells Fargo Securities, LLC
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research (704) 715-8437 & Economics (212) 214-5070
[email protected]
Paul Jeanne
Associate Director of Research & Economics
(443) 263-6534
[email protected]
John E. Silvia, Ph.D.
Chief Economist
(704) 374-7034
[email protected]
Mark Vitner
Senior Economist
(704) 383-5635
[email protected]
Jay Bryson, Ph.D.
Global Economist
(704) 383-3518
[email protected]
Scott Anderson, Ph.D.
Senior Economist
(612) 667-9281
[email protected]
Eugenio Aleman, Ph.D.
Senior Economist
(704) 715-0314
[email protected]
Sam Bullard
Senior Economist
(704) 383-7372
[email protected]
Anika Khan
Economist
(704) 715-0575
[email protected]
Azhar Iqbal
Econometrician
(704) 383-6805
[email protected]
Ed Kashmarek
Economist
(612) 667-0479
[email protected]
Tim Quinlan
Economist
(704) 374-4407
[email protected]
Michael A. Brown
Economist
(704) 715-0569
[email protected]
Tyler B. Kruse
Economic Analyst
(704) 715-1030
[email protected]
Joe Seydl
Economic Analyst
(704) 715-1488
[email protected]
Sarah Watt
Economic Analyst
(704) 374-7142
[email protected]
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