Pending Sales Flat, Foreclosures Soar

The monthly National Association of Realtor pending home sales numbers are out, and they’re unchanged from last month. The index remains at 85.9 for the month of January and is the same figure that the NAR reported for December. It’s also the second-lowest reading on record.

The NAR also updated its market forecast. The group, known for being overly-optimistic, is projecting a 1.2% decline in median home prices, with a 6.1% decline in home prices alone. A modest turnaround in the second half of the year, however, is predicted.

As a closing attorney who works with investors, I expect price deterioration to continue for the foreseeable future, and real estate investors should adjust their investment strategies accordingly.

In separate, but not unrelated news: the Mortgage Bankers Association is reporting that foreclosures hit an all-time high in the last quarter of 2007. According to the MBA, two percent of all mortgages are in foreclosure.

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Case-Shiller Home Prices: A Broken Record

The S&P/Case-Shiller Home Price Indices, released today, continue to show a broad decline in the prices of existing single-family homes, making 2007 a full year of declining prices nationwide.

Fourth-quarter 2007 prices fell a record 8.9 percent. Year-over-year prices declined 9.8 percent for the 10-city index and 9.1 percent for the 20-city.

Atlanta’s prices continued to slide: prices have now declined 3.4 percent from last year’s levels.

Investors should expect prices in the Atlanta area to continue to decline as buyers look for bargains, and excess REO and homebuilder inventory continue to contribute to the glut of homes on the market.

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Foreclosures Skyrocketing

RealtyTrac just released January’s foreclosure report, and the number of homes in some stage of foreclosure rose 57 percent from January of last year.

And it does not appear that the foreclosure train is showing signs of slowing down anytime soon; - the rate of foreclosure filings rose 8 percent from December.

As James J. Saccacio, the chief executive officer of RealtyTrac noted: "January's foreclosure numbers demonstrate that foreclosure activity is continuing on its upward trend, substantially increasing from a year ago in many states"

Georgia ranked in the top ten of states with the highest foreclosure activity, with over 10,000 reported properties in some stage of foreclosure.

As a closing attorney who works with investors, what do I think we can, and should, take from this?

First: while a number of governmentally-sponsored foreclosure prevention plans have been enacted, they do not seem to be having any effect on the overall number of foreclosures.

Second: these monthly increases in foreclosures should not surprise anyone, and will most-likely continue as more and more adjustable-rate mortgages reset to higher rates.

Third: Increasing number of foreclosures represents an increasing number of REO properties on the market that investors will have to compete with as they try and sell their properties.

Fourth: Increasing number homes in foreclosure means that there are more potential deals out there, and investors can really take their time and cherry-pick the best ones.

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Home Sales and Prices Down, but…

The latest National Association of Realtors’ figures are out, and existing home sales have fallen for a sixth-straight month.

January sales dropped to 4.89 million nationwide, 0.4 percent less than last month. Year-over-year sales were down 23%.

Economists had predicted that existing home sales would fall to 4.80 million.

Median home prices as reported by the NAR dropped to $201,100. Last January the median was $210,900.

Additionally, the total of homes for sale rose 5.5% to 4.19 million. Which represents a 10.3-month inventory of homes on the market.

While this report shows the market declining at a slower pace than expected, investors should be fully aware of the nature of the NAR report before trying to call a bottom to the industry’s decline.

First, while it is true that the NAR statistics show a smaller drop in home sales than expected, a drop is still a drop. Additionally, the NAR only measures contracts signed, and not actual closings. One can expect that a number of contracts will not result in sales.

Additionally, an increase in overall home inventory will result in more downward pressure on home prices.

There has been recent (relatively) positive news in housing, and investors should watch the reports carefully, but I still think it’s way early to call a turnaround to this market. Once we see several months of declining inventory and stable new-home and existing-home sales, as well as less-restrictive credit markets, then we can start talking about reaching bottom.

Housing Starts Decline, but…

Echoing the homebuilders’ confidence index released yesterday, the rate of single-family home starts fell to a 17-year low in January.

It was the tenth-straight month of declining single-family home starts, and the annual rate fell to $743,000.00.

New single-family homes building permits fell as well, also hitting a 17-year low.

However, overall housing starts increased slightly in January, thanks to an increase in multi-family units, such as condos and apartments.

While the big homebuilders are not seeing light at the end of the tunnel, there may be some good for investors in this news: the industry has been beset by a complete excess of home inventory, which combined with the financing and foreclosure difficulties, has worked to push home prices down. As the supply of available homes decreases, there is hope that prices will stabilize.

Additionally, an increase in apartment starts shows us that the big investors are projecting more renters in the future, and those investors who enjoy landlording should position themselves to take advantage of these new tenants.