Top Florida economist: Home prices to rise in 2011

I wanted to highlight a conversation I had with Dr. David Denslow, economics professor at the University of Florida.

Here's the compressed version: Florida home prices will trough next year, flatline until about 2011, and then high-step for several years after that.

Denslow said prices must fall a bit more until they're in line with what a majority of current and future Floridians can afford.

But once prices reach their valley in 2009, there will be insufficient updraft, thanks to high inventories of unsold homes, to lift prices for a couple years.

What changes in 2011? The first cadre of baby boomers - born in 1946 - turns 65. While the baby-boomer-to-the-rescue theme is a hoary favorite of self-promoting real estate agents, it's partly founded in fact. Many boomers WILL choose Florida for their permanent residence or vacation home.

Denslow assumes price rises after 2011 will be steady but unspectacular, probably 4- to 5 percent a year. He thinks Florida real estate is beginning to adopt the California model: 1) Several years of booming prices followed by 2) three years of plunging prices followed by 3) up to 5 years of flat prices followed by 4) resumption of boom mentality.

We'll luck out on the "5 years of flat prices" only because of the moneyed intervention of retiring boomers. Or so Denslow thinks.

Are 6 percent real estate commissions toast?

Here's a link to a columnist who's clamoring for changes to the 6-percent real estate commission model. He thinks the Justice Department's deal with the National Realtors Association will mean slimmer paychecks for agents:

Kiss your 6 percent commission good-bye, Ms. Agent! Competition is on the way. The only reason — only reason — that Realtors could hold onto their high commission for such little value and work is that they kept information away from the marketplace, making it inefficient.

I'm not convinced the full service real estate agency is kaput. Cheap brokerages seem to flourish during booms, when homes pretty much sell themselves. But the recent collapse Tampa's Home Discovery (home of the 2 percent commission) showed people require more coddling in a down market.

You can list a home as cheaply as you want, but good luck getting an agent to show your house if you're not kicking them a few thousand dollars in commissions. They just won't show your house unless they're paid in the end.

Here's a link to this guy's full column

Real estate bigwigs pushing tax credits to buy distressed homes

Is anyone else bothered by this?

The National Association of Realtors and the Mortgage Bankers Association are pushing the federal government to pass a tax credit for home buyers.

The Feds and Florida already favor home purchasers with low interest rates, mortgage interest tax write offs and taxpayer subsidized insurance. Now they want further hand-outs. But note the catch contained in this statement from the mortgage bankers:

In this time of declining home prices, Congress can use new tax incentives to encourage first
time homebuyers and others to purchase foreclosed, abandoned or other distressed properties. Doing so will spur the demand for housing, which will have the effect of slowing and possibly
even stopping the nationwide decline in home prices.

Sometimes the best government policy is no policy. You helped create the subprime mortgage mess by insisting banks give loans to bad credit risks. Now you reward those same bad credit risks by subsidizing the sale of their homes?

But mostly this is a naked bail-out for mortgage bankers. The credit seems designed to help banks dump properties repossessed from default homeowners.

Let's see: A subsidy for homeowners who walked away from their debts and the bankers who made it possible. Where does this leave the financially responsible?

Feds break up Realtor "monopoly"

The National Association of Realtors appears to have settled its anti-trust lawsuit with the U.S. Department of Justice.

The deal maker: Realtors will stop blocking Internet-based brokers from tapping hundreds of multiple listing service data bases around the country. The MLS contains most of the homes for sale in a particular region.

The government sued Realtors in 2005, declaring the MLS restrictions anti-competitive and monopolistic. Click here for the full story.

More renters say they will "wait out the storm"

Take this with whatever grain of salt you like. But the National Apartment Association commissioned a survey that shows that 69 percent of renters plan to remain renters for at least 5 years.

What's more, 80 percent of adults in the survey think the housing market won't improve in the next 6 months.

"The country is deep into the discussion of the economic fallout of sub-prime mortgage lending. However, little attention has been paid to how the crisis is impacting people's choices to stay in rental homes and wait out the storm,” said National Apartment Association President Douglas Culkin.

"Renters are not eager to take a chance on homeownership this year. If the economy improves, that trend may abate, but, for now, people are generally staying put.”

Needless to say, apartment associations are as self interested as Realtor associations. Here's the press release put out by the apartment people: Download renters-survey.pdf

Southwest Florida in a housing recovery?

I covered the improvement in home sales south of the Tampa Bay area in a recent post and in a newspaper story on Friday. But the Bradenton paper nicely encapsulated the things-are-possibly-looking-up trend over the weekend.

Sample paragraph: "The market is much healthier now than during this time last year," said Luke Andreae of Re/Max Harbor Realty in Punta Gorda. "I don't mean prices, I mean the number of buyers and people out there looking."

Read the whole thing here.

The housing slump started about 6 months to a year earlier in Southwest Florida than it did here. That suggests that early 2009 could be a date worth watching in the Tampa Bay area.

Tampa socked by huge home price decline

Tampa Bay area home prices fell 19.6 percent from March 2007 to March 2008, bringing our home values back in line with what they were in February 2005, according to the S&P Case-Shiller home price index released Tuesday.

Our home price decline was 7th worst among 20 cities listed on the index. Nineteen of 20 cities reported price declines. Charlotte, N.C., was the only exception. The average price decline was 14.4 percent.

Once again, Tampa-St. Petersburg came off better than Miami and a slew of cities out West. Las Vegas suffered the worst price decline at 25.9 percent. Here's a list of the worst hit areas:

1. Las Vegas: -25.9 percent
2. Miami: -24.6 percent
3. Phoenix: -23 percent
4. Los Angeles: -21.7 percent
5. San Diego: -20.5 percent
6. San Francisco: -20.2 percent
7. Tampa: -19.6 percent

Here's a link to the full chart

West Florida home sales kick butt

Okay, I exaggerate a tad. But the April home sales reports from many west Florida communities, including parts of the Tampa Bay area, looks like tentative good news to me.

When you measure April 2007 against April 2008, home sales improved in Sarasota, Punta Gorda and Fort Myers. Tampa Bay area sales were down 8 percent year to year, but Hillsborough and Citrus counties both reported little or no decline. Pinellas County Realtors said sales were down 10.7 percent.

Fort Pierce was the only home sales show stopper on the east coast of Florida.

More good news from "pending sales," the homes under contract that have yet to close. Pending sales were up in April in every county in the Tampa Bay area.

Okay, so this isn't the Second Coming. But the plunge in year to year home sales that began in December 2005 seems to have stabilized.

Prices? That another story. In fact, in places where prices dropped the most, like Fort Myers, sales have recovered the best.

Go figure. People like a housing bargain. Here's a chart with details: Download aprilfar.pdf

National home sales remained weak in April

WASHINGTON (AP) -- Sales of existing homes fell for the eighth time in the past nine months, with the backlog of unsold single-family homes rising to the highest level in more than two decades.
The National Association of Realtors said that existing home sales dropped by 1 percent to 4.89 million units, matching the all-time low set in January. These records go back to 1999.

The median price for an existing home dropped 8 percent, compared with a year ago, to $202,300. Analysts predicted further price declines given the huge backlog of unsold single-family homes, which rose in April to 10.7 months supply at the current sales pace, the highest inventory level since June 1985.

The April sales drop was slightly smaller than had been expected. The housing industry is being battered by a prolonged slump that has seen sales and prices decline and mortgage foreclosures soar, the aftermath of a five-year housing boom.

Sales were down the most in the Midwest, a drop of 6 percent, followed by a 4.4 percent decline in the Northeast. Sales were up 6.4 percent in the West, a region of the country where prices fell by the sharpest amount, and were unchanged in the South.

Even with the weak results for April, Lawrence Yun, chief economist for the Realtors, said he saw reasons for optimism for the second half of this year as more types of mortgages become available as industry and the government respond to a severe credit crunch that began last August.

"I would encourage buyers who were disappointed by poor mortgage options to take another look at the market because the lending changes are significant," he said.

However, other economists were not as optimistic about a rebound in sales, contending that the continued drop in prices was keeping potential buyers sitting on the fence, waiting for prices to fall further.

"With prices collapsing, the incentive not to buy a home is increasing by the week, and with inventory showing no sign of improvement, prices will keep falling," predicted Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The severe slump in housing and the related credit crunch, which has resulted in multibillion-dollar losses at some of the nation's largest financial institutions, has depressed growth and raised worries about a recession.

Feds: Tampa ranks 260 out of 292 for price drops

As the last blog posting made clear, the Tampa area is an increasingly affordable home buying market. But it comes at a price.

In the past year we're one of the worst hit metro areas in the nation when it comes to price declines, according to the Office of Federal Housing Enterprise Oversight.

The agency said Tampa-St. Petersburg-Clearwater prices are down 8.46 percent the past year, 3.81 percent lower from quarter to quarter. Over the past 5 years we're still way up at 61.4 percent.

I'm not sure about the accuracy of the Fed's numbers. The agency itself has struggled to make its numbers correspond more closely to the widely cited Case-Shiller home price index. (Case Shiller's last report said Tampa prices were down 17.5 percent year to year)

But assuming the agency's price tracking methodology is consistent across the nation, the relative rankings are probably pretty sound. In the state rankings, Florida ranked third worst. No surprise at all.

Here's the whole file chock full of stuff. Skip ahead to Page 38 to see Tampa's data: Download homedata.pdf  

Majority of Tampa-St. Pete residents can afford typical home

The two-year attrition in home sales and prices has made housing affordable for a majority of Tampa Bay area households.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, 60 percent of Tampa-St. Petersburg-Clearwater households can afford the median priced home of $167,000. The index says the median family income here is $56,500.

That places us almost perfectly in the middle of the pack nationally. We ranked 114th out of 223 metro areas. The most affordable region was Kokomo, Indiana, where 95 percent of families can afford the median home price of $88,000.

Things aren't so pretty in Miami. It placed almost dead last for affordability in the country - 217th out of 223 - thanks to a crushingly high median home price of $300,000. Despite its glittery South Beach reputation, Miami's income isn't so hot either. It's just $49,200. Heavy Third World immigration contributes to low family income.

The builders count both new and existing homes in their home price statistics, so the figure won't match the Realtor numbers, which include fewer new home sales.

Here's the national chart with all the details: Download affordindex.xls. You'll need a Microsoft Excel reader.

Economist: Better jobs mean better home sales

The surest and straightest path out of the housing crunch is to bring in better paying jobs.

That was the take of University of West Florida economist Rick Harper. He spoke this week at a gathering of 200 Florida economic development officials at the Intercontinental Hotel in Tampa.

Harper reiterated how Florida home prices have outpaced wages. He said median home prices used to be 3.2 times household income. In other words, if you and your wife made $100,000, you'd buy a house worth $320,000.

But during the last boom things got out of whack. The same home now costs 4.5 times household income, or $450,000 based on the previous scenario.

Of course, high-skilled workers help regions in ways other than housing market resuscitation. Quoting Bill Gates, Harper said each such worker spins off four additional jobs.

The "worst single thing" that could hit housing would be restrictive immigration policies, Harper said. By this he meant restrictions on legal immigration, not the illegal variety we associate with Rio Grande crossings.

Later in the economic development conference, another professor said the competition for good jobs can only get more heated.

Daniel Borgia of Florida Gulf Coast University said the tens of millions of skilled workers emerging in China and India will suppress our wages.

Borgia's worst case scenario: Average U.S. wages have already peaked. They'll never be higher than they are now - ever.

Let's hope he's wrong. The thrust of the conference was that innovation and productivity - not importing low-wage unskilled workers "with nothing else to lose" - are the path to a modern economy.   

Chill effect: $200-million Clearwater condo project stalled

Developer JMC Communities has placed its $200-million Marquesas project on Clearwater Beach on hold.

Reason: The housing downturn has sapped sales.

The twin-tower project was supposed to have 142 condos and 6 penthouses ranging in cost from about $800,000 to $3-million.

But in a May 7 letter to buyers, JMC, which has successfully launched three other condo projects in Clearwater, announced it was postponing Marquesas.

The developer has offered Marquesas buyers a choice of unsold condos in its previous luxury beach front project, Sandpearl Resort.

Sandpearl has excess units thanks to investors who fled the market once they realized they couldn't flip the properties at a profit. Until Marquesas is built - JMC is building a new sales center to beef up marketing - its buyers can use the beach club at Sandpearl.

JMC is the real deal. Marquesas and its sister projects never had the wish-and-a-prayer feel your got from the likes of Trump Tower Tampa on the other side of the bay.

In the end, developers got stuck selling too many condos to investors who had no real intention of living in them. The strata of society that can afford $1-million condos is narrow.

[Carrie Pratt, Times files]

Apartments help propel new home construction

A bit of good national housing news from the Associated Press that isn't applicable to much of Florida:

Construction of new homes posted the biggest increase in more than two years in April. While it was a rare spot of good news for the housing market, analysts said it's far too soon to declare an end to the prolonged slump.

The Commerce Department reported Friday that housing construction rose by 8.2 percent in April to a seasonally adjusted annual rate of 1.03 million units. Building of single-family homes continued to weaken, however. The growth came from a big jump in apartment construction.

Analysts predicted the surprising rebound in April would be temporary given the headwinds builders are still confronting, from slumping sales to soaring home foreclosures.

"It is definitely too early to uncork the champagne on the long and winding road to more-healthy housing-market conditions," said Brian Bethune, an economist at Global Insight. He said he did not expect housing activity to stabilize until the end of this year.

The prolonged slump in housing has been a major drag on the overall economy, raising worries that the country is in danger of falling into a recession. A second report Friday showed that consumer confidence as measured by the University of Michigan/Reuters survey fell to a 28-year low of 59.5 in early May, down from 62.6 in April. The drop was blamed in part on rising concerns about higher gas and food prices.

The strength in housing construction in April came entirely from a huge increase in apartment construction, which can be extremely volatile from month to month. Building of apartments, defined as two or more units, jumped by 36 percent to a seasonally adjusted annual rate of 340,000 units.

In the Tampa Bay area, despite a glut of rental condos, apartment construction has been fairly brisk. Hillsborough County has been the focal point, with 11 complexes under construction from Brandon to Tampa's Channelside to the Westshore business district.

Though Pinellas County had no active apartment projects as of the start of the year, 7 projects totaling 2,000 units are in the planning pipeline.

"Demand for rental housing is, in some respects, greater than ever," said Michael Slater, whose Tampa company Triad Research & Consulting specializes in the apartment industry. Thousands of people pushed out of homes by foreclosures often turn to apartments, Slater said.

The larger single-family sector dropped by 1.7 percent to an annual rate of 692,000 units. It was the 12th consecutive monthly decline and pushed single-family building activity to its lowest point in 17 years, since a severe housing slump in the early 1990s.

At least someone's making a real estate killing

From the Palm Beach Post:

Donald Trump on Thursday morning publicly acknowledged he has a contract to sell his Palm Beach mansion for $100 million.

Then, in a roundabout way, the billionaire real estate mogul confirmed what everyone on the island already knows: That he has sold the former Abe Gosman mansion to a Russian.

"I just sold a house in Palm Beach for a number of approximately $100 million," Trump told the hosts of CNBC's Squawk Box during a wide-ranging interview on the economy.

Trump recently signed a contract to sell his 80,000-square-foot estate to an unnamed foreign buyer at the full asking price of $100 million, The Palm Beach Post revealed Thursday. The 6-acre estate is located at 515 N. County Road.

Trump bought the property, the former home of health-care magnate Abe Gosman, for $41.35 million in 2004, following Gosman's bankruptcy filing. Trump then poured $25 million into a renovation. He priced the home at $125 million when he put the estate up for sale in 2006.

This year, however, Trump dropped the price to $100 million.

If the Trump deal closes, it will set a record in Palm Beach. The standing record is $81.5 million, paid in April for the home of billionaire businessman Sidney Kimmel. The buyer of that home, at 1236 S. Ocean Blvd., was former Goldman Sachs partner John Thornton.

Maybe he could reinvest some of the profits into Trump Tower Tampa. It's not looking too good lately, unless you like abandoned lots festooned with tattered banners.

National Realtors group gropes for bargains in Bismarck

Industry groups have the right - nay the duty - to promote their members. But sometimes the search for golden nuggets among the dross goes to extremes.

Take the National Association of Realtors report that came out this week touting housing success stories.

It praised rising condo markets in such locales as Bismarck, N.D., and New Orleans. Winter wheat and Katrina clean-up: We're not talking Key Biscayne here. The report also played up bargains in the Rust Belt. Anyone for Youngstown, Ohio, Decatur, Ill, and Saginaw, Mich?

One of "success stories" stuck in my craw for personal reasons. NAR praised Elmira, N.Y. for its 10 percent home price rise the past year. It was the second biggest price jump in the whole Northeast. That happens to be my hometown. Family and friends live there. Let's make one thing clear: The rise is misleading statistical bunk.

Though its local focus was a bit silly, the report was helpful in one regard: It revealed that 48 of the 149 metropolitan statistical areas monitored by NAR had higher median single family home prices year over year. Even with Elmira-like anomalies in the mix, it's reassuring to know not every market is tanking.

Here's the full report.

Mixed bag: Foreclosures down in Pinellas, up elsewhere

When it comes to foreclosures in April, not all counties in the Tampa Bay area were created equal.

In the past couple weeks we've reported how home prices are dropping more steeply in the suburbs where the building spree was most intense. It's probably no surprise that foreclosures are mirroring that trend.

Here's what the RealtyTrac numbers are saying:

• Pinellas County saw foreclosures dip 19 percent from March to April. About 996 foreclosure filings were counted in April, or one for every 503 households. Year over year, such filings were up 63 percent. Pinellas ranked 29th in the state for mortgage default filings, which places it in the middle somewhere.
• Pasco County reported foreclosures filings were up 13 percent from March to April for a total of 728. That's one in every 292 households. Pasco ranked 15th in the state for homes entering the foreclosure process. Year over year, mortgage default filings were up 94 percent in April.
• Hillsborough County reported 1,889 foreclosure filings in April, a 9 percent increase from March. About 1 in every 268 households was so affected, placing Hillsborough 15th in the state. Foreclosures were up 157 percent from April 2007 to April 2008.
• Hernando County came off the worst. Its 561 filings ranked it 4th in the state, up 226 percent from a year earlier and up 135 percent from March. About 1 in every 138 households were affected.

A few words of warning about the RealtyTrac data: The company tends to double count filings against a single property, so the totals aren't as high as they seem. What's more, that Hernando increase from March to April - 135 percent - seems suspiciously high considering neighboring Pasco's foreclosures were up only 13 percent month to month.

Florida Realtors see hopeful signs in quarterly home report

Can you say more of the same?

The Florida Association of Realtors released it 1st quarter housing report taking in sales for the first three months of 2008.

Needless to say, the details are scarcely different from the individual reports from January, February and March that we've already posted on here.

Here's the Tampa Bay area tallies:

Single family home sales: 4,831 in 1st Q 2008 versus 6,416 in 1st Q 2007, -25 percent

Condo sales: 1,188 in 1st Q 2008 versus 1,289 in 1st Q 2007, -8 percent

Single family median sales price: $179,600 in 1st Q 2008 versus $210,300 in 1st Q 2007, -15 percent

Condo median sales price: $153,000 in 1st Q 2008 versus $171,900 in 1st Q 2007, -11 percent

The state Realtor association sees some positive trends going into the 2nd quarter of this year:

“If we look at what is happening month-over-month for 2008, it appears that the bottom of the housing slowdown may be here,” 2008 President Chuck Bonfiglio said. “We are now seeing more activity, more sales and even prices starting to rise in some markets. So I believe that there are some really good signs in many areas of our state.”

When it came to sales and price declines among single family homes, Tampa and the state paralleled each other pretty closely. Sales statewide dipped 26 percent and the median price fell 15 percent.

It was a different story with condos. Despite a glut of condos for sale in places like Tampa and Clearwater, sales and price declines weren't as steep locally as they were in the rest of Florida.

Two theories why that was true: In the Tampa area, condos remains a relatively affordable option when house prices rise out of reach. Secondly, collapsing condo markets like Miami's probably brought down the state average.

Is the Tampa housing market kissing the bottom?

This could be the turning point we've been waiting for.

The Greater Tampa Association of Realtors (GTAR) reports that 1,235 homes sold in April. That includes houses, town homes and condos.

Here's the encouraging news: Sales are almost unchanged from the 1,249 homes that sold in April 2007. That represents a tiny 1 percent sales decline.

It's a huge shift from the year-over-year declines reported in the first three months of 2008. Take January: Sales in January 2008 were 791, a 29 percent plunge from the 1,121 homes that sold in January 2007.

The average sales price is down 15 percent the past year, so maybe discounted homes are stimulating demand. 

The inventory of homes for sales has dropped only a hair the past year, from 20,409 in April 2007 to 20,117 in April 2008. Measured in months, that's a 16 month supply of homes on the market. Realtors says a balanced market has about 6 months worth of homes for sale.

For more information read this chart: Download gtarapril.pdf

Foreclosures improve nationally/Tampa fails to get message

A bit of good news released Monday.....

The nation’s foreclosure hemorrhage slowed a bit last month. Lenders repossessed 74,570 homes following foreclosure in April, down more than 5% from March. April pre-foreclosures dropped 7.52% from March too, according to California-based ForeclosureS.coms.

“The sky isn’t falling, and the bottom of the housing market is in sight,” says Alexis McGee, foreclosure information expert, educator, and president of ForeclosureS.com.

Followed by a more sober local reality courtesy of the same company....

1. Pinellas County: 5,524 preforeclosures so far this year, 1.33 percent of households
2. Hillsborough County: 9,074 preforeclosures so far this year, 2.32 percent of households
3. Pasco County: 4,936 preforeclosures so far this year, 3.34 percent of households
4. Hernando County: 1,940 preforeclosures so far this year, 3.5 percent of households

Florida as whole has had 162,316 preforeclosure filings, or 2.56 percent of households, so Pinellas and Hillsborough are below the state average and Pasco and Hernando are higher than average.

Conclusions? The nation will heal before Florida does. We had more foreclosure filings than California, though it has about twice our population, according to foreclosures.com.

Also, the higher rates of mortgage default in the newer, northern suburbs highlight once again how speculative over-building caused a lot of our mess.

Here's the press release from the company

And here's another view: Crisis far from over

After the Wall Street Journal columnist's cheery projection (see posting below), here's the ulcer-encouraging outlook from The Economist. The author assumes we're only half way through the housing bust and prices are set to fall much further, particularly in places like Florida. A key quote:

The discrepancy between supply and demand suggests that prices could fall a lot more. By historical standards there is a huge glut of unsold homes on the market. The homeowner-vacancy rate—which includes all vacant homes for sale—has soared to a record level of 2.9%, which means that there are some 1.1m “excess” houses for sale compared with the average between 1985 and 2005. Although the inventory of new homes is falling as builders have slashed their production, the supply of homes for sale is being pushed up by foreclosures even as demand from new homeowners remains weak.

Read the whole thing.

Wall Street Journal: Housing "crisis" over

This article from last week makes some good points about a pending housing recovery. Of course, it uses a broad national brush and isn't specific to Florida:

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

"Steep losses" predicted for Tampa housing market

Oh Boy. We've made a Top 10 list for "markets set for steep losses" We're No. 7, behind Miami, Orlando, Lauderdale and host of other Sunbelt underachievers.

Money magazine predicts our prices will drop 17.1 percent in the next year and won't hit bottom until January 2010.

Money provides no obvious supporting documentation for its analysis, at least on its Web link. It seems to base its prediction largely on the region's foreclosure rate.

Equally confusing is its claim that our median home price is $200,000. February's median single family home price in the Tampa region was $178,900, according to the Florida Association of Realtors.

That would affect the 17.1 percent depreciation prediction, wouldn't it? It would bring our median price to $166,000 in the next year, even though Realtors says we're already more than half way there.

Click here for the gory forecast.

Are high gas prices helping kill the suburbs?

Here's a long report arguing that gasoline prices played a large role in deflating suburban real estate: Download cantor.pdf

I think it overstates the case a bit. While it's true that home prices fall as you fan out from the city center, a lot of that has to do with relative land scarcity and commuting times. In the Tampa area, suburban home prices stink because that's where every speculator and his cousin were playing real estate tycoon.

The source of the gas report is Joel Cantor, a developer who's building the Signature Place condo tower in St. Petersburg. Cantor's a friendly guy with a keen eye for a promotional opportunity. He figures that expensive gas = equals more sales for his tower.  

Top economist gives Tampa Realtors pep talk

I wrote a piece for the St. Petersburg Times about a presentation Wednesday by National Association of Realtors' economist Lawrence Yun. He predicted that in 5 years, Tampa area home values will have risen at least 20 percent from where they are now. That means if you bought in 2005 and 2006 at the peak of the market, you'll likely recover most of your investment by 2013.

Here's a line to the story.

Here's some extra stuff from Yun's Tampa talk that didn't make the story. Some of it's a recap of national news, but I found it interesting nonetheless:

• Chinese, German and Saudi investors were burned so badly on those securities backed by subprime mortgages that the subprime market is pretty much gone for good. FHA loans will have to fill the gap, but the government is tougher about lending to Any Old Joe. Yun discussed massive conflicts of interest on the part of Wall Street companies. The same companies that rated the securities (Moody's, etc.) also received millions in commissions by underwriting those securities. Then they force fed the junk mortgage money to the banks. This is how Yun described the process: "Here's the money. Give it to anyone who shows up."
• Yun said people who need to change homes should agree to "sell low and buy low." But he said homeowners hate to concede on prices, which rise quickly during booms but are "sticky" going down. Price stubbornness on the part of sellers is helping create a "lock-in effect:" No one can buy a house because no one can sell.
• Yun is lobbying the White House to sign more legislation helping home buyers. It includes a $7,500 tax credit for first-time purchasers. Yun turned up the screws on President Bush, saying a president who entered office promising an "ownership society" shouldn't leave office with a cloud of foreclosures hanging over the market.
• Predictions that a wave of foreclosures will swamp the market have been exaggerated. Yun said. The wave theory is based on the fact that adjustable rate mortgages taken out in 2006 and fixed for 2-years are resetting in greater numbers this month and next. Yun said huge numbers of investors who held those ARMs have already walked away from the loans prior to the reset. So we've already suffered much of the hit. Also, interest rates are so low the the resets won't be as disruptive.   

Vacant properties drag down electricity sales

An increase in vacant homes contributed to a significant slowing Progress Energy Florida's electricity sales, the company said Thursday morning as it discussed first quarter results.

The number of vacant properties increased in February and March, compared with the same months last year, the utility said. The utility defines unoccupied property as a customer using less than 200 kilowatt hours of electricity a month. The average residential customer uses nearly 1,100 kilowatt hours a month.

To read more and to view Progress Energy's presentation, go to our blog The Fueling Station.

-Asjylyn Loder, Times Staff Writer

Fewer new Tampa homeowners upside down on mortgages

The "negative equity" situation remains rancid in the Tampa Bay area. According to Zillow, the online real estate service, a typical homeowner here owed $12,000 more than his home was worth in 2007.

But I see a little glimmer of hope in the latest negative equity numbers for the first three months of 2008. Of the homes bought at the start of this year, people have positive equity. It's the first time this has happened across the board since the summer of 2005.

Look at this chart supplied by Zillow (Note the return of "green" territory on the extreme right side of the graph):

   

I can think of several reasons why people are less indebted: Banks are demanding buyers put down larger down payments and are offering fewer funny-money negative amortization loans.

More encouragingly, people are getting better deals on the homes they're buying. They're paying real market value. They're not being gouged as buyers were in 2006.

State's largest private land owner predicts real estate bottom

St. Joe, the state's top corporate land baron with 638,000 acres spread mostly across the Florida Panhandle, suggests the real estate market, at least in its neck of the woods, might have bottomed.

“If we are in fact on the floor of the valley the question is, 'How wide is the valley?'’’ chief executive Peter Rummell said this morning in announcing the company made $32-million in profits the first three months of this year.

Helping its balance sheets in the first quarter of 2008, St. Joe sold 57,435 acres of its "non-strategic" rural land for $91-million. But its residential housing business has been in free fall. That side of the business brought in $30-million in early 2007 but only $9.8-million in early 2008.

Rummell said home and lots prices seem to have stabilized after deteriorating by 20- to 30 percent from their peaks in August 2005. The inventory of homes for sales has also stopped rising.

Rummell said the company's task is to "retrain buyers" that housing purchases can't be deferred forever.

"We have trained people to expect that price are going to be lower tomorrow than today if they just wait," he said. "So now people are going to have to learn that they’ve gotten to that point.”

Pinellas County: 1,001 foreclosures in 91 days?

The activist group ACORN has issued a pretty informative take on Pinellas County foreclosures in the first three months of this year. Plenty of decent maps.

Here's a copy of the group's presentation: Download acorn.pdf

Counterintuitive: Tampa area builders' stocks booming

Here's a lesson on how hard it is to beat the experts at their own game. New home sales are horrible, the worst in decades if you believe the stories.

But the stocks of the region's largest publicly-traded builders are kicking derriere. Check out this chart I assembled comparing stock prices at the end of 2007 with the situation on May 5:

1. Pulte: $10.54 on Dec. 31, $14.48 on May 5, +37.4 percent.
2. Lennar: $17.89 on Dec. 31, $19.65 on May 5, +9.8 percent
3. KB Home: $21.60 on Dec. 31, $24.74 on May 5, +14.5 percent
4. Beazer: $7.43 on Dec. 31, $11.68 on May 5, +57 percent
5. M/I Homes: $10.50 on Dec. 31, $17.64 on May 5, +68 percent
6. Ryland: $27.55 on Dec. 31, $34.51 on May 5, +25.3 percent

How's that for irony. You go broke investing in their products but you would have made a mint if you had put your down payment into their stocks at the start of 2008.

It's a lesson few of us learn: Try to ignore the boosterism during the booms and the panic calls during the busts. The level heads always seem to make the money.

UPDATE: Here's a link to a guy who insists this mini stock boom is built on muck. Key quote:

Homebuilder stocks have rallied on expectations of happy days and now their stocks are extremely overvalued. As for real happy days, they are nowhere in sight.   

If they can't sell in New York, they can't buy here

All those New Yorkers who bought houses in the Tampa area in 2004-05 have become scarce. But the problem isn't just a waning appetite for Florida. In many cases people simply can't sell their high-priced houses up north to reinvest in cheaper Florida houses.

A story from Sunday's St. Petersburg Times

Shocker: Real estate licensees increase the past two years in Tampa

As the housing slump deepened the past year, 25,197 Florida real estate professionals let their state licenses lapse, the Department of Professional and Business Regulation said.

But the Tampa Bay area must not have gotten the memo. The number of local real estate licensees has actually grown since the housing downturn took hold in mid-2006.

Statewide, real estate professionals, mostly agents and brokers, saw their numbers dip 7.4 percent, from 342,239 to 317,045 the past year.

In the Tampa Bay area the number of real estate license holders grew 5.6 percent in the past two years, from 33,544 in 2006 to 35,413 this year. (The state couldn’t provide Tampa area totals for 2007).

Though about 500 fewer agents kept their licenses active in Pinellas County, that loss was cancelled out by gains in Pasco, Hillsborough and Hernando counties. We're talking "active" licenses.

One home sale wipes out the modest cost of renewing your license. So maybe it's not all that surprising.

As a side note, appraisers are also thinning the herd. Their overall Florida numbers are down 20.6 percent the past year, from 18,693 to 14,835. 

True or false? It's cheaper to buy a house now than in 2000

Here at Unreal Estate we're all about equilibrium, equal time, sharing, caring. Okay, maybe not caring. So here's a column from the St. Pete Times taking a slightly more optimistic view of the housing market. Check out the theory that buying a house today costs the same as buying in 2000:

Dave Seidenberg works for Tampa-based luxury home builder Bayfair Properties. Like many builders, he's "struggling like crazy."

Another thing that makes him crazy is all the griping about how many months it will take for home prices to reach bottom.

Seidenberg was defiant during a phone chat this week: "There is no magic bottom."

Let's not misconstrue his message: Overall home prices still have room to sink. It might be 2009 before prices have enough ballast to steady themselves.

The Florida Association of Realtors says the local median sales price has fallen 25.3 percent since it topped out at $239,600 in June 2006. Now it's $178,900.

While Seidenberg is confident many homes already are scraping the price floor, the screeching sound isn't universal.

He points to one of his own models in Pasco County. It sold a few years ago for $499,000, rode a speculative tidal wave to $700,000 and beat a retreat this year to $499,000.

Lest you think his example is too self-serving, Seidenberg's commissioned some research. Contrary to popular opinion, financing a new home this year costs the same as financing such a home in pre-boom 2000.

In 2000, the median new home price was $172,427. If you bought that house at the then-average loan rate of 8.29 percent, the monthly mortgage payment would have come to $1,281.

Skip ahead to 2008. The median price of a new home is $216,000. If you paid that amount and borrowed at today's 5.97 percent interest rate, the monthly payment comes to $1,219.

I admit the scenario requires some creative omissions. Buyers are going for smaller homes this year. The mortgage payment might be the same, but the square footage probably isn't.

Let's not forget taxes and insurance, either. Taxes are higher because the sales price is higher. And the pre-Hurricane Charlie glory days of property insurance for a few hundred bucks are gone with the wind.

But Seidenberg's not done pleading his case. He says hiring contractors is as cheap as it has been for eight to 10 years. That translates to price concessions. And don't expect mortgage rates to hide in the basement. In the past 37 years, going back to April 1971, they've been this low only 23 times in 444 months.

As we enter the season of stucco and shingle, expect plenty of wooing from builders: Buy now or forever hold your peace.

Economist: The faster housing values fall, the faster they'll recover

Wells Fargo economist Michael Swanson has an interesting take on housing's role in the current economic slowdown. He says it's not a typical recession in which businesses have too much inventory, and in trying to trim that inventory trigger an economic slump:

This recession started with the deflating of the residential housing bubble. It is arguable that the housing market represented a particular type of inventory to sales cycle similar to the manufacturing inventory to sales cycles that typically start and end a recession.

If so, then the cycle of this recession should follow correction of the housing cycle. Home builders and buyers made a mistake when they argued (and acted as if) there was no limit to the value of housing. While some markets can see  home price appreciation outstrip the growth of personal income to pay for it for a while, the value of housing as a whole can’t grow out of proportion to the economy that supports it.

Ultimately, housing represents a consumption activity and not an investment activity. An asset bubble exists when current assets sell for a large premium to their cost of replacement. Many housing markets clearly reached that point.

The good news for the economy comes from the fact that housing values will be self-correcting, and the sharper they fall below their true economic value, the faster they’ll recover. The real demand for housing comes from household formation and personal income growth. Currently, personal income growth has slowed, but household formation continues unabated. Eventually, the fundamental drivers of growth will overcome the downward momentum of the housing market.

The question of course involves when. Just as many people pointed out that the housing market was overvalued in 2005 only to see it rise further. Pointing out that housing values have overcorrected to the downside doesn’t mean that  the market won’t go down even further on negative sentiment and credit tightness.

A downturn in the housing market could be a multiyear event similar to the housing market of the early 1990s. That market serves as a good example for modeling the current slump.

I pulled some home price data from the last slump in the early 90s and it shows the Tampa area housing recession lasted close to three years, from spring of 1990 to spring of 1993.

If we're having a copycat recession this time around, a good estimate for the start of the housing recovery would be 2009.