Construction spending is at historic lows, another consequence of a housing market that drags on economic recovery. Image: CC Garreth & MaryJ

For the past three months, construction spending — a key economic indicator — has been plummeting. The construction sector has gotten so weak that spending in February reached its lowest level since the fall of 1999. New home construction, dragged down by foreclosures and short sales, was even worse, dropping to the lowest level in recorded history.

Construction: February is the cruelest month

Builders broke ground on fewer homes, apartments and government projects in February than they have in more than a decade. Construction spending in February dropped 1.4 percent; it was the third straight month of decline. The seasonally adjusted annual rate of construction spending in February hit $760.8 billion, the weakest level since October of 1999. While other sectors of the U.S. economy have been showing signs of life, construction has been holding back a more robust economic recovery. Lingering effects of the recession, including depressed demand for commercial projects such as office buildings, hotels and shopping centers and tight lending standards, continue to cause problems for the construction sector. February construction activity fell to about half the $1.5 trillion level economists figure is needed for a healthy construction sector. It has been estimated that construction won’t recover from the housing bubble that triggered the recession for another four years.

New home construction burst along with housing bubble

Private residential construction fell 3.7 percent in February to an annualized rate of $228.5 billion. Single-family and multi-family construction both dropped due to a glut of unsold homes and record foreclosure levels. Until housing inventory can be cleared, new home construction will continue to languish. According to the National Association of Realtors, existing home sales fell about 3 percent in the last year, but new home sales have dropped 28 percent. In February alone, new home sales dropped 16.9 percent, from an annual rate of 301,000 to 250,000 — the lowest level since the government started tracking the numbers in 1963.

New home sales: no buyers, no builders

In the construction sector, new home sales drive the growth that affects the bottom line in GDP. But new home sales currently cost about 29 percent more on average than existing homes, about double what is considered normal, according to the National Association of Realtors. The existing home market continues to be devalued by foreclosures and short sales, which made up almost 40 percent of all home sales in February. Until the foreclosures on existing homes are cleared and the inventory of new homes falls, home builders have essentially taken a time-out. Before the recession, 80 percent of builders sought financing. According to the National Association of Home Builders, only 20 percent now are looking for construction loans.

Sources

Associated Press

MarketWatch

CNNMoney.com

Statistics of the national vacancy rate may cause people to think that ghost towns are popping up, but that is not the case. Photo Credit: Vivaverdi/Wikimedia Commons/CC-BY

It has been reported that the national rate of vacancy, or the number of houses sitting empty, has reached a 13 percent, but don’t panic. That figure does not mean it is time to begin constructing a bomb shelter and making hats from tinfoil. The housing market is depressed, but signs of life are still there.

Wealthy buying fewer homes in vacation hot spots

The media report a number of economic indicators, and statistics regarding real estate can cause a sense of doom on the horizon regarding the housing market. For instance, CNN recently published an article that said up to 13 percent of homes sit empty in America. That is a misleading statistic; CNN points out that many of the vacancies are in areas like Maine, Arizona and Florida — popular places for vacation homes. Furthermore, vacancies have gone up less than 1 percent, from 12.1 percent to 13 percent, in four years.

Pending sales increasing

Pending sales, homes that are being officially in the process of being sold, increased by 2.1 percent over February, according to Bloomberg. The dip in home sales over the past few months was attributed partially to frigid winter conditions, as no one wants to go house hunting in the middle of a blizzard. However, pending sales for February 2011 were also 8.2 percent lower than for February 2010, as the housing market is still sputtering. Lawrence Yun, chief economist for the National Realtors’ Assocition, anticipates existing home sales will pick up over the rest of 2011, according to Reuters, as older homes are selling at a faster pace than newly built homes. Newly built homes are usually more expensive than older homes.

Reality of realty

Most news about the housing market makes it seem as though a second crash is imminent, and it may be. The reality is that sales are slow, houses are not worth as much as they used to be, and banks may be less willing to lend. Prices are likely to stay low as long as fewer people are willing or able to buy houses, and lenders are skittish about lending in the current economic climate surrounding real estate. The good news is that anyone with the means to buy right now will get a great deal, and people who already own are likely to see the value of their property rise in the next few years.

Sources

CNN

Bloomberg

Reuters

Put into perspective, consumer spending is being canceled out by inflation, and the housing market could be bottoming out. Image: CC Mr. T in DC/Flickr

An increase in pending home sales in February was not enough to offset the big slide in contract signings reported in January. A February gain in consumer spending was also neutralized after being adjusted for inflation driven by rising food and energy prices. But the minutely positive data on pending home sales and consumer spending boosted stocks Monday, and some real estate experts think the housing market may have bottomed out.

Inflation and consumer spending

Consumer spending in February increased 0.7 percent compared to the month before, according to the Commerce Department. Consumer spending has risen eight months in a row, but February’s increase, adjusted for inflation, is just 0.3 percent, matching the increase reported in January. Rising food and energy prices pushed up inflation in February. After rising 0.3 percent in January, the Commerce Department said the personal consumption expenditures price index rose 0.4 percent, the fastest rate recorded since June 2009. The increase in the consumption expenditures price index effectively canceled out February’s 0.3 percent increase in personal income. Households have also been dipping into savings to cover rising food and energy prices. Savings dropped from $710.5 billion in January to $676.7 billion in February.

Pending home sales as an economic indicator

Pending home resales increased 2.1 percent in February after dropping 2.8 percent in January, according to the National Association of Realtors. Compared with February 2010, pending home sales fell 9.3 percent. Because they represent signed contracts, pending home sales are considered a leading economic indicator. The number affects existing home sales data a month or two later, when the contracts close. As for February, existing home sales — 95 percent of today’s housing market — dropped 9.6 percent from the month before. The median price for existing homes dropped 5.2 percent from February 2010, erasing all increases in home values since February 2002. New home sales plunged 17 percent in February to the lowest rate ever recorded. The median price for new homes dropped 8.9 percent from February 2010.

Has the housing market bottomed out?

Because home prices continue to fall, the National Association of Realtors expects existing home sales to eventually rise 5 to 10 percent overall in 2011. Very few people are buying despite the fact that housing has become so affordable it should be one of the most attractive investments in the U.S. According to Deutche Bank, it’s now cheaper to pay a mortgage and other major homeownership costs than to rent the same house in 28 out of 54 major markets. Optimistic real estate analysts are betting that this affordability will eventually entice potential homeowners into pulling the trigger. The re-emergence of homebuyers could start raising housing prices in many markets, which could get even more homebuyers off the fence.

Sources

Bloomberg

New York Times

Fortune

New homes sales and new home construction have dropped to a new low during February. Image from Wikimedia Commons.

Demand for newly constructed homes and new home sales have been put on ice during the past few months of bitter cold. Sales of new homes dropped nearly 17 percent during February, and the housing industry continues to experience record low levels of activity. The drop in sales has been partially accredited to skittish lending conditions.

Home construction brought to a crawl

The construction and sale of new homes has slowed considerably during the past few months, which has been attributed partially to cold weather, a glut of foreclosure properties on the market and dwindling demand, according to Reuters.

New housing starts, or new housing being built, decreased by 27 percent during the month of February. New home sales from the end of January to the end of February declined by 16.9 percent, and the seasonally adjusted annual rate of sales slowed to 250,000 from 300,000. New home sales have decreased by 28 percent since February of 2010, according to that year’s data.

Winter conditions likely were a factor in delaying construction, but weak demand is certainly a factor as existing home sales fell too. However, it may equally be the case that banks are unwilling to write huge installment loans for homes few are willing to buy.

Head real estate economist blasts sluggish lending

Lawrence Yun, the chief economist for the National Association of Realtors, blasted skittish lenders and “unnecessarily tight credit” at a recent press conference, asserting that there would be greater numbers of sales if “mortgage credit conditions would return to normal,” according to the NAR website.

Ron Phipps, president of the NAR, echoed Yun by saying that though interest rates for mortgages were certainly lower than many short term loans, lamenting that “credit remains a challenge.” However, it is difficult to justify paying for a new home when prices for existing homes are low. At the end of February, the median price of existing homes reached $156,100 compared to new homes, which have a median price of $202,100 for new homes.

Glut of foreclosures

The housing market is currently riddled with foreclosed properties, and the rich are having a field day gobbling them up. Cash sales made up 33 percent of all home sales in February, and 39 percent of all homes sold were distressed properties, according to Bloomberg.

Federal Reserve Chairman Ben Bernanke has also been pessimistic about housing, being quoted recently as saying that mortgages were “difficult to obtain” and that “there’s no demand for construction,” in a recent appearance before Congress.

Housing data has been indicating that for the lucky few who have the cash or the credit, a great bargain can be had. However, those that are trying to become homeowners will likely have a difficult time. The housing industry as a whole will likely continue to struggle until demand and the supply of credit begin to perk back up.

Sources

Reuters

Bloomberg

National Association of Realtors

Mortgage applications rose recently, as low interest rates have spurred interest in mortgage modifications. Image from Wikimedia Commons.

Mortgage applications have risen over the past month, largely thanks to more people applying for mortgage modification. Low interest rates make modifications more attractive than purchases. However, prospective buyers are still apprehensive because home values continue to fall.

Low interest rates fuel spike in mortgage activity

Months of low interest rates have caused a spike in mortgage activity, according to Bloomberg. Mortgage applications rose by 15.5 percent during the week that ended March 4, which is the largest increase in mortgage activity since June 11 of 2010. Mortgage applications declined 6.5 percent during the same week in 2010. However, applications for mortgage modifications fueled the bulk of activity, 65.5 percent of total mortgage application volume, up from 64.9 percent the week before. The Mortgage Bankers Association reports that the purchase index rose by 12.5 percent from the week before, but the MBA does not differentiate applications for purchasing existing homes or new homes. The sale of existing homes makes up about 90 percent of all home sales.

Home values continue to plunge

Home prices have declined 31 percent since prices peaked in July 2006, and there is rampant speculation that a double dip in real estate is possible. One of the leading proponents of the idea that a double dip is pending is Robert Shiller, co-founder of the Case-Shiller Index, according to CNN. Shiller believes home prices will continue to fall, and the fact that home sales dropped during January 2011 certainly means it is possible. Unfortunately for most middle class prospective home buyers, taking advantage of lower prices is going to become more difficult over the next few years as financing standards are about to change.

Fannie and Freddie may take 30 year mortgage with them

The government has expressed interest in getting rid of Fannie Mae and Freddie Mac. Fannie and Freddie create capital for lenders by purchasing mortgages and selling them to investors, keeping the mortgage industry flush with cash for new loans. Should the mortgage houses be done away with, the 30-year fixed mortgage may go with them, according to the New York Times. A 30-year loan with fixed interest is a risky venture, as the lender cannot see the future. Few people pay off the loan or stay in the same house for 30 years. It is likely that within the next decade, adjustable rate mortgages will become the norm, as investors will want to be able to adjust interest rates to the market. Larger down payments will likely be required, and interest rates will be higher.

Sources

Bloomberg

Mortgage Bankers Association

CNN

New York Times

Fewer Americans believe homeownership and real estate are worthy investments. Photo Credit: Infrogmation/Wikimedia Commons/CC-BY

Americans are becoming less convinced that getting mortgage loans to buy real estate is a good idea. A recent survey found that the number of people who believe owning a home is a worthy investment has dwindled to the lowest level in years. Home sales have been sluggish to recover from the housing crash.

Fewer see homeownership as good investment

American real estate has been shaken to its core during the past few years. One of the side effects has been that fewer people believe homeownership is something to aspire to and that owning a home is not as good an investment as once thought, according to Reuters. Mortgage investment house Fannie Mae performs a quarterly survey on attitudes about home ownership, called the National Housing Quarterly Survey, which found that 64 percent of respondents believed that the tradition of going to a bank or loan company to get a loan and buy a house was a good investment. That marked a declined from early 2010, when 70 percent of respondents thought so. In 2003, the figure was 83 percent.

More people turning to rentals

As fewer are buying houses, more are going with paying landlords instant cash through renting. The percentage of vacant rental units declined over the fourth quarter of 2010 to 9.4 percent from 10.3 percent in the summer of 2010. That is the lowest percentage of available rental units since 2007. The same survey from Fannie Mae found that nearly 75 percent of respondents said they thought it would be harder to get a mortgage from a loan lender than to  rent.

Home sales fall

New home sales plunged over the month of January 2011, according to CNN. Some areas where prices are dropping are able to sell more inventory, but areas like Arizona and other places with highly inflated prices have difficulty liquidating housing inventory. However, after stops and starts over the fall, new home sales fell 11.2 percent over January 2011, marking an 18.2 percent reduction between January 2010 and January 2011. The housing market is down more than 80 percent overall from a peak point in 2005.

Sources

Reuters

CNN

A grain of salt may be needed to swallow the latest news of a "surge" in December new home sales. Image: CC quinn.anya/Flickr

New home sales exceeded analysts’ record-low expectations in December. The rise in December new home sales followed an alarming drop in U.S. home prices in November. A temporary spike in mortgage rates is suspected of driving the numbers, as home prices are expected to continue sliding.

Take new home sales with a grain of salt

New home sales registered a 17.5 percent month-to-month gain in December, according to the Commerce Department. New homes sold at a seasonally adjusted 329,000-unit annual rate in December. But these days even the most minor item of good news in the housing market must be taken with a grain of salt. The number of actual homes in the U.S. that sold in December was just 22,000. The Commerce Department also revised new home sales in November down to 20,000, the worst month ever. December 2010 wins the honor of second-worst month ever. Plus, December new home sales in 2010 were down 7.6 percent from December 2009. Overall new home sales in 2010 fell 14.4 percent to a record low 321,000-unit rate.

Why new home sales ‘surged’

New home sales may have received a bump from rising mortgage rates. The rate on 30-year fixed mortgages moved up more than half a point from the last week of November and into December to reach 5 percent. Potential home buyers sitting on the fence until home prices bottomed out may have interpreted the mortgage rate blip as a signal that it was time to get a home loan before the market turns the corner. However, the rate on 30-year mortgages has since returned below 5 percent. According to Freddie Mac, 30-year fixed mortgage rates averaged 4.99 percent for the week ending Jan. 21, down from 5.06 the week before. Another reason for the surge in new home sales may have been foreclosure moratoriums.

New home sales in 2011

A positive trend in new home sales for 2011 may depend on the behavior of home prices. Choosy shoppers in a buyer’s market continue to drive down home prices with cheap counter offers. The Standard & Poor’s/Case-Shiller home price index released earlier this week reported new lows in home prices for nine major U.S. cities. A wave of foreclosed homes is expected to hit the housing market in 2011, which will further drive down home prices. If it becomes evident to potential home buyers that home prices have bottomed out, many more are expected to visit a mortgage lender.

Sources

Reuters

CNBC

Los Angeles Times

Existing home sales are down, thanks to the tax credit expiration and high unemployment numbers, to name just two factors. (Photo Credit: CC BY-ND/David/Flickr)

While new home sales showed an increase in June (but a marked decrease in July), the Association of Realtors has revealed the dirty underbelly of those statistics, reports Bloomberg. Contracts to buy previously owned homes were down that month, something that experts did not predict. The indication here is that as the home buyer tax credit expired, demand spiraled downward.

Economists predicted 4 percent growth in existing home sales

The median forecast by the National Association of Realtors had a much rosier outlook on June 2010. Existing home sales weren’t predicted to fall as far as they did immediately following the April 30 deadline for the government tax credit, when a massive 30 percent drop occurred. Bloomberg reports that 30 percent drop in May 2010 was the largest decrease in existing home sales since the association began the median forecast in 2001.

No more $8,000 credit means people need to earn more

Of course America remains in a recession, which means that unemployment is still high and wage gains remain stagnant. As Treasury Secretary Tim Geithner predicts that unemployment will increase in August, existing home sales probably aren’t going to be trending upward for a while. Stocks are down in anticipation of the bad news, as the Standard & Poor’s 500 recently went down 0.6 percent.

Existing home sales are the bulk of the housing market

In fact, 90 percent of the U.S. housing market consists of existing home sales, so the recent downturn doesn’t bode well for a housing market recovery. Lawrence Yun, chief economist of the National Association of Realtors, told Bloomberg that “There could be a couple of additional months of slow home sales activity before picking up later in the year, provided the job market improves.”

The specter of home seizure

Then there are those pesky foreclosures. Even though 30-year fixed mortgages are down to 4.54 percent at July’s end, foreclosure was up 38 percent from the year previous, according to RealtyTrac, Inc. Donald Horton of home builder D.R. Horton Inc. remarked that market conditions have become quite challenging, and there’s no immediate end in sight.

Sources:

Bloomberg

Homeowners who are staying put

New home sales in June beat forecasts, but they were still the second lowest on record as the U.S. housing market drags on economic recovery. pnrwa/Flickr photo.

New home sales exceeded gloomy forecasts in June, rebounding from a record low in May. But because new home sales fell so low after the home buyer tax credit expired last spring, June’s numbers were still the second lowest on record. Some believe that the worst of the post-tax-credit slump is over. Others think that increasing foreclosures and the stubbornly high U.S. unemployment rate offset the positive news.

New home sales beat forecast, but that’s not saying much

The Commerce Department said on Monday that new home sales jumped 23.6 percent to a 330,000 unit annual rate from a downwardly revised 267,000 units in May. CNBC reports that the pace of new home sales in June was still the second lowest since records started being kept in 1963. However, the percentage increase was the largest increase since May 1980, and partially offset the historic 36.7 percent decline in May. Even so, economists expect a weak U.S. housing market to be a drag on U.S. economic recovery for much of the year.

Record-low mortgage rates stanch the bleeding

New home sales weren’t as bad as expected, in part because of the lowest mortgage rates on record. Bloomberg reports that record low mortgage rates are a serving as a stabilizer for the U.S. housing industry that triggered the worst recession since the 1930s. However, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools. New home prices are continuing to fall. The median price for new home sales decreased 0.6 percent from June 2009 to $213,400.

U.S. housing market continues to drag on economic recovery

New homes sales made up about 7 percent of the U.S. housing market last year. Taragana.com reports that number is down from a portion of about 15 percent before the housing crisis. Weak new home sales mean there are fewer jobs in the construction industry, which has historically driven economic recoveries. Each new home built creates, on average, three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The effect is felt across multiple industries.

New home sales plunged to a record low in May after the home buyer tax credit expired. Home prices and consumer spending are expected to follow, further hobbling a limping economic recovery. Flickr photo.

New home sales fell to a record low according to a report by the Commerce Department released June 23. A slide in new home sales statistics was expected after the home buyer tax credit expired at the end of April. But the 32.7 percent drop in May was more than expected. Existing home sales also dropped, surprising forecasters who expected them to rise. Unemployment is the main reason the housing market is flagging without the tax credit. Sharp declines in the housing market, a critical component of consumer spending, are threatening the fitful U.S. economic recovery.

New home sales: a new low

New home sales had surged in March and April as homebuyers hurried to buy homes before the April 30 deadline for the tax credit. Homebuyers have until June 30 to close the deals for the home tax credit, but the Senate may vote to push that deadline back to Sept. 30. CNNMoney.com reports that the May decline of 32.7 percent represents a drop to 300,000 homes from 446,000 in April. Sales year-over-year fell 18.3 percent.The Commerce Department said the May figures are the slowest sales pace since it began tracking home sales statistics in 1963. The prior record was set in September 1981, when new homes sold at an annual rate of 338,000.

Consumer spending takes a hit

The decline in new home sales, if it continues,  leads to a decline in housing prices, which leads to a decline consumer spending as well — the biggest threat to economic recovery. Business Week reports that the drop in residential construction will sap consumer spending that accounts for about 70 percent of the U.S. economy. There’s direct correlation between home sales and spending on furniture, appliances and building materials. On June 11 the Commerce Department reported that sales at U.S. retailers fell 1.2 percent in May, the first decline in eight months, led by a record 9.3 percent plunge at building-material stores.

Government wary of new home sales statistics

New home sales fell sharply across the U.S., with sales down more than 50 percent in the West. MarketWatch reports that housing market stats in May were dismal across the board. Housing starts fell 10 percent, building permits fell 5.9 percent, mortgage applications dropped and the home builders’ index fell by five points. The dark cloud’s silver lining was mortgage rates, which stayed very low.  Another glimmer of hope may be that government statisticians have low confidence in the monthly Commerce Department new home sales report, which is subject to major revisions,  sampling flaws and statistical errors. The government says it can take up to four months to establish a statistically significant trend in sales.

U.S. unemployment rate to blame

New home sales are being affected by the anemic U.S. job market. Edward Leamer, an economist at the University of California, Los Angeles, told MarketWatch that unemployment is the main reason housing is weakening without the tax credit to spur demand. The U.S. economy would have to grow at a 5 percent to 6 percent rate to create “significant reductions” in joblessness. “People won’t buy homes when they are worried about their jobs,” he said.