Real estate's February report card

Affordability: C+

Affordability continues to quickly improve due to declining home values and falling mortgage rates. However, strict lending standards, job loss fears and fear of further declining home values have kept many potential buyers on the fence. Mortgage rates continue to fall, reaching their lowest level in nearly 40 years. The 30-year fixed mortgage rate was at 5.07 percent at February month-end. The Fed's overnight lending target rate remains at a range of 0 percent to 0.25 percent, which is the lowest level on record, with the intention of kick-starting the economy and battling deflation. The Mortgage Bankers Association reported a slight increase in the share of adjustable-rate mortgage (ARM) applications, which reached 2.4 percent in the last week of February, but is still extremely low when compared to peak levels above 35 percent of total loans in early 2005.

Consumer Behavior: D-

Consumer confidence continues to weigh heavily on the economy. The Conference Board's consumer confidence index -- currently at just 25 -- reached its lowest level in the 41-year history of the index. The Consumer Sentiment Index also declined in February, yet the Consumer Comfort Index increased slightly this month. As consumers cut back on spending, the personal savings rate continues to improve, gaining 5 percent year-over-year for a total of $546 billion in savings.

Existing-Home Market: D

The existing-home market remains weak due to steep price declines and weak sales volume. The median price in the resale market has fallen nearly 15 percent year-over-year to $170,300, according to the National Association of Realtors (NAR), while the Case-Shiller index shows an annual decline in paired sales of more than 18 percent. The annualized existing-home sales volume declined to 4.5 million transactions in January, down from 4.7 million in December, and down 8.6 percent year-over-year, according to the NAR. The volume of pending home sales declined sharply in January, and is now 6 percent lower than one year ago, which suggests sluggish sales activity for the near future. The supply of unsold homes increased slightly to 9.6 months of inventory, which remains high compared to history.

New-Home Market: F

The new-home market continued to show signs of weakness in the past month. Builder confidence increased slightly this month, yet remains near historical lows, as the Housing Market Index increased to a value of 9. The median new-home price fell in January and is now down 13.5 percent year-over-year, equal to $201,100, according to the Census Bureau. The annualized new-home sales volume also fell sharply in January to 309,000 transactions, declining 48 percent year-over-year, and reaching the lowest level since the Census began tracking this data in 1963. While the absolute volume of unsold new homes continued to decline, falling sales activity pushed the months of supply to more than 13 months.

Housing Supply: F

The overall supply of new housing diminished across the board, from permits to starts to completions, continuing to push housing supply to extremely low levels. The annual volume of new-home completions fell to 1.01 million units, which was down 24 percent year-over-year. Both single-family and multifamily starts declined, pushing total starts down to 466,000 units. Single-family permits declined, and multifamily increased slightly, resulting in a nearly 51 percent year-over-year drop in total permit activity. The homeowner vacancy rate increased slightly in the fourth quarter to 2.9 percent -- matching a record-high level.

John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis. He can be reached at jbrec@realestateconsulting.com.

Copyright 2009 John Burns

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