I am retired and take educated guesses on all things financial.

October 11, 2010

October 11, 2010: Credit Suisse First Boston September Housing Survey: Ouch

Amongst the first to release valuable data and forward-looking prognostications on a comprehensive roster of nationwide real estate markets is CSFB. I have followed this report and have found it to be long on facts and observations from those with boots on the ground and short on political spin.

September results were released late last week, and they vividly present a toxic brew of falling sales, prices and a malaise present in buyers, sellers and intermediaries that is too ingrained to be wished away.

Real estate agents noticed a marked decline in prices at the end of the summer. With a score of "50" being average, the scale stood at "22". CSFB anticipates a continuing drift downwards as builders attempt to capture as much business as possible before the winter months. An already high (and rising) inventory is apt to worsen the situation. Look for increasing incentives and a lowering of prices, which is not good news for stockholders of big box builders such as D.R. Horton, NVR, Pulte and Beazer.

Although the overall home market was very weak, there was a slight monthly uptick in Washington D.C. and Phoenix. Worsening conditions prevailed in areas such as Dallas, Jacksonville and Southern California. No sign of a rebound is detected by CSFB nationwide.

Of increasing concern is decreased buyer traffic. The following is illustrative of the magnitude of this issue. With "50" being the norm, here is a bi-monthly sample:

January 2009: 36.5
March: 36.0
May: 45.4
July: 43.4
September: 44.8
November: 43.0
January 2010: 43.5
March: 43.1
May: 31.5
July: 19.1
September: 17.9

Here are comments from the field:

Atlanta - "Poor economic conditions and higher unemployment translates to terrible traffic."
Austin - "People have pre-election jitters. They want more clarity before they buy."
Charlotte - "The number of showings on my listing has dropped 60%. There is no motivation."
Chicago - "Buyers think there is still more downside to price."
Denver - "People are giving up hope because they don't think they can get financed."
Ft. Meyers - "Buyers keep mentioning the economy. They are concerned."
Las Vegas - "My clients are waiting for the bottom. They don't think we are there yet."
Los Angeles - "Buyers are taking their time to make a decision because they have such as selection to choose from."
Minneapolis - "Economic uncertainty has been a major problem."
Washington D.C. -"Move up buyers can't sell."
Boston - "Economic uncertainty has people not even thinking about new homes."
San Francisco - "There is no urgency and consumer confidence is awful."

There has been recent chatter about the halting of foreclosures by financial institutions due to technical issues. Several of my mortgage banker friends have an interesting take on the action. In their view, there is such a backlog of foreclosed properties dead on the market, and so many in the pipeline, banks have concluded that it is better to keep people in a house than leave it to plethora of bad things that can occur if it is unattended. Under this scenario, banks are not stopping foreclosures for any reason other than to mitigate losses.

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