Has Spring Sprung in Housing?
I’m getting frustrated with two words: “Housing Market.” For weeks now I’ve been getting the questions from my friends, the pitches from so-called housing experts and the assignments from my bosses: How is the Housing Market this Spring??
I get it that I’m the real estate reporter, so this should not come as any surprise. And it’s not, but here’s the rub. We get all these earnings reports from the home builders, whose earnings drops and cancellation rates are really quite staggering, and then we get reports from the U.S. Commerce Department on housing starts, which dropped 14% in January, and then everybody screams that we haven’t hit the bottom of the housing market and if I say anything even remotely bullish, I’m just a shill for the National Association of Realtors.
Let me say this: if you live in Florida, don’t depend on making any money off of your home or condo right now. If you live in Arizona, your house is going to sit on the market a lot longer than it would have two years ago. If you live in California, your prices are ridiculous. If you live in Detroit, you might as well wrap up your house, put a bow on it and give it away to the first person that passes by, because nobody’s going to give you actual money for it.
That said, the existing home market is beginning to plateau. The existing home market. What a lot of people fail to take into account is that new homes make up 20% of the market. The rest of the homes are already here. The new home market is still in the dumps, no question.
“The data point that we focus on is the number of vacant houses in the system – today it’s about 2.2 million – it should be 1 million,” says Margaret Whelan, homebuilder analyst for UBS. “So the spread – that 1.2 million is why we think it will take 3 years before housing supply really bottoms and we start to see real growth in permits back to historical levels.”
For new homes, it is a buyer’s market. Homebuilders are giving away everything and the kitchen sink to move inventory. They don’t want to lower prices so much because that kills the balance sheet, but if you want help with the financing, if you want the extras thrown in, you can negotiate hard and well at the closing table.
Toll Brothers CEO Robert Toll said yesterday that it was still too murky to tell if this Spring will be the turnaround for new homes, but I was sitting with two realtors in Bethesda, MD yesterday who said that traffic and sales are way up in the area just in the last few months. Existing home sales data shows the sales rate for the nation is beginning to plateau. And the bigger factor is the economy.
“The housing decline is a supply issue, not a demand and economic issue,” says Richard Manoogian, Chairman and CEO of Masco, a building supply company. The new homebuilders got caught up in the boom that was fuelled by real estate speculators. They simply built too many homes, and now they can’t sell them. That certainly had a downward effect on the overall housing market, as the media jumped all over the scary numbers on the earnings reports and drove potential buyers into their basements, but demand is still there, and the overall economy is still strong, with interest rates historically on the low side.
So, how’s the spring housing market? Take a look across your street, and you tell me.
Questions? Comments? RealtyCheck@cnbc.com