Sellers in the first quarter of 2010 were starting to feel renewed pressure to lower their asking prices, possibly portending a lackluster housing market this year, according to a webcast by real estate data company Altos Research.
The presentation highlighted emerging trends for the spring 2010 housing market — typically a time of year when home sale activity ramps up.
After falling since April of last year, housing inventory started rising in January and showed no signs of abating at the end of March, clocking in at about 265,000 in Altos’ 10-city composite, which includes: Boston, Chicago, New York, Los Angeles, San Diego, San Francisco, Miami, Las Vegas, Denver and Washington, D.C.
"The biggest cause for concern is rising inventory. We’re seeing a spike in inventory levels for the first time in about 18 months. Inventory levels right now are about where we were in January of 2008. Inventory climbed all through 2008 and prices fell pretty dramatically (as a result)," said Scott Sambucci, the company’s vice president of data analytics.
"We know historically prices continue to move back down throughout the year. If the numbers don’t continue to move up pretty significantly, we could very well start 2011 at the same place we started in 2009," Sambucci said.
After the market hit a trough in January 2009, prices rose through mid-2009 and then started dropping. The first quarter of this year saw asking prices start to level off and hint at rising, with the median price of new listings at about $440,000 in March among the 10 cities tracked by Altos.
Nonetheless, when the prices of new listings are compared to the prices of properties sold, the latter have a median price of about $420,000 — which could exert downward pressure on the prices of new listings, the company said.
While in the first quarter of last year, demand for homes in different price ranges was fairly even. 2010’s first quarter saw demand pulled toward lower-priced homes.
Altos’ first-quarter market action index (which is a proxy for the market’s absorption rate and is based on a 20-city composite) showed the highest activity in the lowest (with a median price of $290,000) of four price ranges. The two middle price ranges — with medians of about $405,000 and about $590,000, respectively — were "flat to down," while the highest-price segment (with a $1.05 million median) saw the least demand.
"It’s really hard to get a jumbo mortgage right now. There’s not a big demand for luxury homes. The $590,000 and $405,000 homes at least fall into FHA conforming range," Sambucci said.
According to Altos, price reductions were elevated but improving in January. By March, however, sellers seemed to be losing confidence. The 10-city composite showed average percent price decreases start to rise.
"We have a lot of REOs (bank-owned homes), short sales, and foreclosures (on the market). We also have a lot of investors and a lot of first-time homebuyers taking advantage of the tax credit. You can still get a pretty decent-sized house at a low price," Sambucci said.
Days on market rose for much of the first quarter as well: to about 172 days by the end of March while it had been at about 160 days at the end of last year and about 130 days at the end of March in 2009.
"The seller on the market is saying, ‘I’ve been on the market for 180 days. I’m starting to get a little worried. I might need to reduce my price,’ " Sambucci said.
New sellers are putting homes on the market at about an 8 percent discount compared to homes already available for sale — "that’s an indication sellers are feeling kind of a pinch," he said.
Active price reductions had been down in bubble markets — Las Vegas, Phoenix, Los Angeles, and Miami — at the end of 2009, but were trending up in the first quarter.
New mortgage loan delinquencies peaked during the market trough in home prices in January 2009, the company said.
When it comes to delinquencies, market conditions matter, Sambucci said. While some assume that if a borrower is deep underwater he’ll walk away from his mortgage, the reality is that borrowers take into account what they see happening in the market, he said.
People notice when "the guy down the street sold his house for a pretty good price," he said, and are less likely to walk away.
Altos also noted increased liquidity in residential mortgage-backed securities (RMBS). The company said that indicates a loosening in lending could be at hand, because retail banks are able to bundle mortgages, put them in a portfolio and sell them to investment banks, thereby decreasing their risk.
"When lending is tight, (lenders) will be more likely to make the loan if someone is willing to take it from them (as an RMBS). When we are talking about liquidity, it means more of these portfolios are being created (and) banks are doing some lending," he said.
Sambucci acknowledges that part of the reason behind the housing crisis in the first place was that banks originating mortgage loans were able to pass on risk to investment banks.
"You know when you’re in college and you wake up with a hangover and your buddy says, ‘Just drink another beer to make it go away’? It’s like that," Sambucci said. "We know that these RMBS gave us all these problems, but it’s the only way banks are making loans right now."
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