Realty Check

Foreclosures Hit Home Builders Hard

A home is advertised for sale at a foreclosure auction in Pasadena, California.
Reed Saxon

Despite the fact that luxury home builder Bob Toll has told me over and over again that foreclosures don't compete directly with new construction, at least not his pricey new construction (which I don't buy for a second), the Monthly Sentiment Survey from the National Association of Home Buildershas some pretty strong words to the contrary.

The index held steady at the lowest level in a year and a half, even though some had predicted it would bump up a bit. It was the sentiment expressed in the index release that really caught my attention:

“In general, builders haven’t seen any reason for improved optimism in market conditions over the past month,” writes NAHB Chief Economist David Crowe. “Builders report that the two leading obstacles to new-home sales right now are consumer reluctance in the face of the poor job market and the large number of foreclosed properties for sale." Foreclosures do matter.

Buyer traffic has deteriorated in new construction, and another report out today finds that while home prices stabilized temporarily thanks to the home buyer tax credit, "leading housing activity indicators such as first-time homebuyer traffic, current homeowner traffic, and investor traffic all declined, indicating reduced homebuyer demand," according to research director Thomas Popik of Cambell Surveys (in conjunction with Inside Mortgage Finance."

“We’re in transition,” adds Popik. . “Individual homeowners listing non-distressed properties and mortgage servicers listing distressed properties are holding out for prices established before the end of the tax credit. Meanwhile, only a few homebuyers are willing to transact at these prices – and these are the transactions going into the averages. That’s why we saw such declines in traffic and volume in today’s market.”

While prices for regular properties are now flat (and we are awaiting another decline), prices for REO (bank owned inventory) are actually up an average 6.3 percent. Unfortunately banks repossessed a record number of properties in August, and we all know what more supply means for prices.

Today I am in Atlanta at a call center for a non-profit called CredAbility.

They used to be the Consumer Credit Counseling Services of Greater Atlanta.

Their call and email volume is up about 40 percent since the height of the housing boom, but what's more interesting is the change in the profile of callers. They have higher credit scores, higher incomes (or higher incomes when they lost their jobs) and they are older. The center helps clients across the nation, and their number one complaint, as usual, is getting a response from loan servicers.

The folks here are interested in what the President has to say at the CNBC Town meeting. The President has had precious little to say about housing in the past year, mostly generalities that we know already, while leaving all the details of the Administration's housing bailout to his underlings. Sitting at a call center like this one, I'm confronted with the faces of foreclosure, or at least the faces I imagine, as I hear bits and pieces of stories and anxieties in the cubicles surrounding the one I borrowed for the day. But beyond the faces are the real business impacts of foreclosures on the housing market, which so many have said would not come to fruition. Some argue there is renewed confidence in housing today; I don't see it, hear it or believe it.

Questions?  Comments?