Sales boomed last fall as the homebuyer tax credit’s original expiration approached in November. With a new tax-credit deadline approaching, sales have improved this spring, but not nearly as much.

The pending home sales index through February, which is shown here, shows the slight improvement over January, but is nowhere near as robust as last fall. Our proprietary monthly survey and our weekly calls to our homebuilding clients have confirmed that March and April were not good months. Not only do sales remain low, but also the traffic of interested shoppers is not improving.

Pending Home Sales Index

The Federal Reserve is done buying mortgages from the GSEs (government-sponsored enterprises — i.e., Fannie Mae and Freddie Mac); elected officials have declared that there will be no more tax-credit extension; and recent loan modification clarifications have cleared the way for the mortgage servicers to increase their foreclosure activity, which will result in more distressed sales.

Despite the tremendous affordability that exists, we remain very cautious about the back half of 2010 because consumers just aren’t showing much interest in homebuying right now.


  • We collect a complete history on 70-plus variables and forecast the important ones by forecasting each metropolitan statistical area (MSA) and rolling it up.
  • In this monthly e-mail, we publish the current stats along with the historical minimums, maximums and averages as a service to the industry.
  • Each indicator is graded based on a bell curve where an "A" is its historical best, a "C" is its historical average, and an "F" is its historical worst. The grades are designed to provide a simple tool for decision-makers to scan the data.
  • Each of the eight categories has a grade that is nothing more than the average of the grades under it.

Economic growth: D+

Spending remains high and income improved, but the unemployment level remains very high. Overall economic growth improved slightly this month, and the results for our economic growth metrics were generally positive. The revised fourth-quarter gross domestic product growth rate increased to 5.6 percent.

The pace of job losses eased this month, and the number of mass-layoff events is plummeting, but employment has still declined 1.7 percent year-over-year. The unemployment rate was flat this month at 9.7 percent, but the broader measure of unemployment, the U-6, increased to 16.9 percent. (According to the Bureau of Labor Statistics, the U-6 includes two groups that the U-3, which is the typical unemployment rate, does not: "marginally attached" or discouraged workers, and those employed on a part-time basis for economic reasons.)

The length of unemployment in the labor force increased to 31.2 weeks this month, reaching a record-high level since the BLS began tracking the statistic in 1948. Personal income improved and has returned to positive year-over-year growth for the second time since December 2008, increasing by 2 percent.

The Consumer Price Index (all items) increased to 2.3 percent from one year ago, while the core CPI (minus food and energy) dropped to 1.1 percent.

Leading indicators: C+

Overall, leading indicators held relatively steady this month, with several individual metrics showing improvement. The Leading Economic Index has increased for the past 11 consecutive months. The Economic Cycle Research Institute Leading Index — an indicator of future U.S. growth — increased 13.9 percent year-over-year and has experienced positive year-over-year growth for the past 10 months.

Stocks improved once again in March, and all four major indices have now experienced large positive year-over-year growth, ranging from 43-57 percent. The Standard & Poor’s Homebuilding Index also improved this month.

The spread between corporate bonds and the 10-year Treasury note declined in March, falling to 1.48 basis points (a basis point is one-hundredth of a percentage point) and is well below the peak of nearly 270 basis points in March 2009 as Wall Street has become less worried about businesses failing over the past year.

Since the 10-year Treasury is seen as a risk-free investment, the spread between corporate bonds and the 10-year Treasury displays the perceived risk of investing in corporate bonds. According to the first-quarter CEO Confidence Index, CEOs are now much more confident about the economy. Business credit availability remained very poor, but deteriorated at a slower rate in the first quarter.

Affordability: C-

Affordability continues to be excellent this month as mortgage rates and median home prices throughout the country remain extremely low. In addition, our measure of the housing-cost-to-income ratio dropped to 25.2 percent, and housing affordability remains excellent compared to the historical norm. Affordability is so good that owning a median-priced home is now less expensive than renting the average apartment.

Household income has fallen 4.1 percent year-over-year to $52,389 as a result of large job losses and government furloughs. The median-home-price-to-income ratio dropped just slightly below the historical average of 3.3 this month, to 3.1.

The 30-year fixed mortgage rate remained flat at 4.99 percent by month-end in March, while adjustable mortgage rates fell to 4.2 percent. The Fed’s overnight lending target rate remained at a range of zero to 0.25 percent, which is the lowest level on record.

The share of adjustable-rate mortgage applications increased to 5.2 percent by the end of March, but is still significantly less than the peak level of 35 percent of total applications in early 2005. …CONTINUED

Consumer behavior: D

Consumer behavior improved this month as the Consumer Confidence Index increased to 52.5 after dropping sharply the previous month. Consumer sentiment was flat this month at 73.6, which is well below the historical average. The credit outstanding per household has fallen 9.8 percent over the last year to $7,682 per household.

The personal savings rate fell to 3.1 percent, but is down from the recent peak of 6.9 percent in May 2009. The Misery Index increased in March, rising to 12 from 11.8 the previous month. This was the result of a slight increase in the inflation rate.

Existing-home market: D+

The resale housing market worsened this month as sales volume fell and the months of supply increased. Seasonally adjusted annual resale activity declined to 5.02 million homes in February, according to the National Association of Realtors (NAR), but increased 7 percent year-over-year, albeit from historically low levels.

Despite the seasonally adjusted decline, on a rolling 12-month basis sales have improved for nine consecutive months, increasing 0.4 percent this month and 6.9 percent year-over-year.

The federal tax credit was set to expire on Nov. 30 until it was ultimately extended to Spring 2010 and expanded to include a larger cross-section of buyers. This led to a surge of closings in November, but sales have dropped over the past three months.

The national median price of an existing single-family home ticked up to $164,300 in February from $163,600 the previous month. However, the median price fell 2.1 percent year-over-year.

Year-over-year losses for the Standard & Poor’s/Case-Shiller national home-price index, which tracks paired sales, eased once again in the fourth quarter. The number of unsold homes increased to 8.6 months of supply, which is above the historical average. Pending home sales experienced an increase this month after falling the previous month.

As of the fourth quarter, 24 percent of all homes with a mortgage throughout the U.S. were worth less than the balance of the mortgage.

New-home market: C-

Overall, the new-home market worsened slightly this month as sales activity decreased and new-home inventory increased. Builder confidence improved to 19 from 15 last month, yet remains very low, indicating that the spring selling season might be slow.

The seasonally adjusted new-home sales volume fell to 308,000 transactions, declining 13 percent year-over-year, but the sample size used by the U.S. Census Bureau to calculate this metric is extremely small and the confidence interval is quite large. The rolling 12-month total also fell this month to 367,000 transactions, which is also the lowest level since at least 1963.

The median single-family new-home price increased to $220,500, and has climbed 5.2 percent year-over-year. The inventory of unsold homes increased again this month to 9.2 months of supply, and the volume of new homes for sale dropped slightly to 233,000 homes.

Repairs and remodeling: D-

Conditions for residential repairs and remodeling were mixed this month, with some metrics increasing and others decreasing. Homeowner improvement activity declined 5.4 percent year-over-year but was slightly better than last quarter’s rate.

The Remodeling Market Index decreased in the fourth quarter to 36.4 after increasing for the previous few quarters. In addition, the index remains well below the historical average of 50. Residential construction has fallen 4 percent year-over-year as of February, but the pace of decline has eased.

Housing supply: F

Housing supply was mixed this month, as new-home completions increased but both permits and starts decreased. Total completions climbed to 700,000 units this month, but have declined 15 percent year-over-year. However, seasonally adjusted new-home starts decreased in February due to declines in both single-family and multifamily starts.

Seasonally adjusted total permits decreased to 612,000 this month, which is a 2 percent month-over-month decline, but permits have increased 11 percent year-over-year.

Although vacancy rates in the U.S. have improved in recent quarters, the majority of the U.S. remains oversupplied compared to history. Just six states in the U.S. are currently undersupplied: Oklahoma, Wyoming, New Mexico, North Dakota, South Dakota and Alaska.

The homeowner vacancy rate increased again in the fourth quarter of 2009 to 2.7 percent, up from 2.6 percent in the third quarter.

Wayne Yamano is the vice president of John Burns 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..

Copyright 2010 John Burns


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