Even the Silver Linings are Dark
Viewpoint 02/24/2011
Even the Silver Linings are Dark
“He who rejects change is the architect of today. The only human institution which rejects progress is the cemetery.” – Harold Wilson
I hope 2011 has gotten off to a good start for everybody. I skipped my January Viewpoint and feel like it’s been forever since I’ve written. In fact, I’ve written a newsletter in one form or another since spring 2004, and the Viewpoint format since fall 2009.
Thank you – By sharing us with your family, friends, and co-workers, we’re able to provide good, valuable, free information to more people. We’re also able to meet more people who might one day become clients, which allows us to continue doing what we’re doing. We really appreciate your referrals!
This year, in an effort to provide you with more & better information AND an easier to read & digest format, I’m going to tweak the format a bit. You’ll see a more well-defined table of contents, with the ability to link to different sections of the newsletter. Each section will offer my viewpoint on somebody else’s article, along with a link to read additional information on that topic.
These changes will give you the ability to quickly read just the parts of each Viewpoint that interest you. Some of you will want to skim; others will read every word (and probably click through to get more information!)
I hope you find the new format easy and informative. And with that, let’s begin…
46% of Mortgage Refi’s are Cash-In
Distressed Activity by Month – Jan 2011
46% of Mortgage Refi’s are Cash-In
from the Calculated Risk blog
In the fourth quarter, 46 percent of borrowers who refinanced their primary mortgages brought cash to settlement to lower the balance on their loans, Freddie Mac said. That’s the highest share of so-called "cash-in" refinances since the company started tracking the numbers in 1985.
Reasons cited include negative equity, PMI avoidance, and the maximum conforming loan limits.
This strikes me as yet another in a long line of things which will be good for us later, but which are acting as a headwind today. Down the road we’ll be better off with people having more equity and smaller mortgage payments. But when I think about the number (percentage) of people who are able to bring large sums of cash to the closing table… It’s not a big number, which corroborates the thought there are many people out there who want to take action but are unable to.
from The New York Times
SEATTLE — Few believed the housing market here would ever collapse. Now they wonder if it will ever stop slumping.
The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.
In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.
The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.
We know there were 4 major epicenters of real estate collapse: Phoenix, Las Vegas, Florida, and Southern California. And we thought the rest of the country wouldn’t be impacted too badly. It makes sense to say the cities with the biggest run-up had the biggest drop-off. But now it looks like other areas are seeing accelerating declines in value.
This could have a very negative impact on the Phoenix real estate market, since we count on people relocating to Phoenix as a source of population growth, and therefore new home-buyer demand. But if they can’t sell their house back home (Seattle, Chicago, New Jersey, etc.), they can’t move here.
Distressed Activity by Month – Jan 2011
from ThePhoenixAgents.com
I want to share 2 charts specifically:
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First of all, the number of vacant homes being listed for sale hasn’t changed all that much in the last two years. The market can’t be considered healthy when there are almost 6,000 vacant homes being added as new inventory each month!
Secondly, take a look at who owns the homes being sold. Traditional sellers (green) were increasing as a percentage in the first half of 2010, which looked like a sign of things getting better. But since then they’ve faded back into obscurity, while bank-owned and short-sales have dominated the marketplace.
from ThePhoenixAgents.com
Two more critical charts worth reading:
.
The Sold Price per Square Foot has been falling steadily over the last year – down about 10% from a year ago.
The Number of Homes Sold each month has been slowly declining as well. Even more damaging is to compare this chart with the Vacant Home Listings chart above. If we had 4,788 sales last month, and we had 5,307 new Vacant listings (not including occupied listings!), which direction would you expect this number to go?
These two charts don’t point to pricing getting stronger in the next few months.
Record Low Housing Completions in 2010
from the Calculated Risk blog
This is a key story: there were a record low number of housing completions in 2010, breaking the record set in 2009.
The total for single family, multi-family and manufactured homes (estimated) was 703 thousand units in 2010. That is about 17% below the 844 units completed in 2009 (including manufactured homes). The previous record low was 1.244 million in 1982.
For 5+ units, completions were at 147 thousand units. This was just above the record low of 127 thousand in 1993 – and that record will be broken in 2011.
This doesn’t include demolitions that were probably in the 200 to 300 thousand unit range. This suggest the excess supply was reduced in 2010, and will probably be significantly reduced in 2011. Of course this also depends on household formation – and that means jobs.
Silver Lining – the builders are not adding to the oversupply of inventory.
Darkness on the Silver Lining: 1) As soon as the market starts to stabilize, the builders will want to build lots of new houses. 2) No new building means no jobs for many people – new construction is a major piece of the Phoenix economic puzzle.
from John Mauldin’s weekly e-newsletter “Thoughts from the Frontline”
The US economy continues to improve in fits and starts. While industrial production was down 0.1% in January, much of it was weather-related, and December was revised up to a healthy 1.2%. Production surveys indicate that production is likely to continue its upward trend.
Inflation is turning back up. The ECRI Future Inflation Gauge has been up for three straight months and is starting to show that worries about deflation, absent a shock to the economy, are going away. Core inflation is still up only 1% from a year ago, while overall inflation is up 1.6%.
The ISM numbers came out for January and they were robust. The number was back above 60 for the manufacturing portion, which is quite healthy. And the service sector showed a very respectable 59.4.
So, what’s not to like? Economy.com compared the ISM numbers with the National Federation of Independent Businesses small-business index; and small businesses, the driver of growth in jobs, just haven’t responded in the same fashion as their larger brothers.
And that lack of optimism is showing up in very weak job growth. While January’s abysmal number is likely due to weather and we should see a much better number for February, it is still not getting us the jobs we need. With governments cutting back on employees, it is likely we will need to see as many as 125-150,000 jobs a month just to keep up with population growth.
Silver Lining – the economy seems to be getting better from many different angles.
Darkness on the Silver Lining – Where are the Jobs? More and more economists are admitting it might be several years, and maybe even a decade, before we’re back to “normal” levels of unemployment.
Conclusion
I’m an optimist by nature, yet I’m struggling to find good news these days. And even when I find good news, it usually has a dark cloud behind the silver lining.
In my predictions for 2011 I said we were through the worst of things and that things would get better throughout the course of the next year or two, although the changes would be at an almost imperceptible pace.
Today, only two months later, I’m doubting myself, and I think the next few months will show us what the next couple years will look like. Here’s hoping I was right before…
Your searching for silver linings Realtor,
Chris Butterworth
Chris & Heather, The Phoenix Agents
at Thompson’s Realty
http://thephoenixagents.com
623-570-9940
Chris Butterworth and Heather Barr are The Phoenix Agents at Thompson’s Realty. The Phoenix Agents are Realtors in the Greater Phoenix area, who have built a loyal following over the years by offering superior service levels coupled with a low-pressure approach. You can visit http://ThePhoenixAgents.com online to learn more about Chris, Heather, and the Phoenix-area real estate market. If you have real estate questions or needs, please contact us anytime; we’d love to hear from you.
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