August 2007 Real Estate Market Indicators and Statistics

It’s that time again…

July is gone and August 2007 is here!  That means we get to provide you with the most up to date real estate market statistics and indicators for the month of August 2007.

Once again, provided in conjunction with John Burns Real Estate Consulting.

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Good-Bye First-Time Home Buyer!

In March 2004, home buyers with an adjustable-rate mortgage could qualify for a $450,000 mortgage. Today, that same buyer can only qualify for a $349,000 mortgage – a decline of 23%. When you now add to the equation that the 2004 home buyer did not need a down payment, and today’s home buyer does need a down payment, where is all of the entry-level demand going to come from? The graph below shows the impact that rising rates over the last three years have had on the value of a mortgage a buyer can qualify for, assuming a $2,000 monthly mortgage payment. This analysis excludes the even more dramatic effect caused by teaser rates, no down payments, and no income verification – all of which are disappearing.

 

Affordability is one of the key elements needed to sell homes, and mortgage rates play a significant role in the affordability calculation. The downturn of the early 1990s was marked by declining rates, while the current downturn has been marked by rising mortgage rates. Interest rates, as well as down payment and credit score requirements, have a substantial impact on home sales and prices.

Economic Growth…………………………………………………………………..C
The economy continues to perform at an average pace, though there was good news in terms of second quarter GDP growth this month. The advance estimates of second-quarter real GDP growth show a 3.4% increase, following a very slow first quarter. Through June, the economy continued to add jobs at a slow, but steady pace. More than 1.8 million jobs have been added in the last 12 months. Retail sales and personal income growth both slid this month, while core inflation was flat at 2.2%.

Leading Indicators………………..……………………………………………….D+
The leading indicators fell this month, as home builder stocks continue to decline and the price of oil continues to rise. The Conference Board’s Leading Economic Indicator returned to negative territory this month, declining 1.3%. The S&P Super Homebuilding Index fell another 14% in July, and is down 37% YTD. The other major stock indices, aside from the NASDAQ, also showed a slower rate of year-over-year growth this month. The yield curve narrowed slightly this month, as long-term Treasury yields fell more quickly than short-term yields. Crude oil prices continue to rise, reaching an average of $74.18 dollars per barrel.

Mortgage Rates…………………….………………………………………………C+
Mortgage rates increased slightly in July, following large jumps in June. At month-end, the 30-year fixed mortgage rate was 6.69%, while the one-year adjustable rate increased to 5.69%. The subprime market continues to worsen, as evidenced by the still-declining ABX 06-2 BBB- series, which has fallen roughly 57% YTD. Jumbo rates have spiked in the last month and reportedly vary widely by bank. Wells Fargo raised their jumbo rate to 8.0%.

Consumer Behavior………………….…………………………………………..C+
Despite all the negativity, consumer confidence is at its highest level in nearly 6 years, brought on by improvement in the job market and business conditions. The Consumer Sentiment and Comfort indices also picked up this month. The questions asked in the Consumer Confidence survey are highly skewed toward feelings of job security.

Existing Home Market……………………………………………………………C
June sales fell to 5.75 million annualized units, which is an 11% year-over-year decline and the lowest volume since March 2003. The months of supply of unsold homes remained flat at 8.8 months, with nearly 4.2 million homes available for sale. The significant amount of inventory has kept price appreciation low, as the median single-family home price has increased only 0.1% in the last year. The Pending Home Sales Index improved this month to 102.4.

New Home Market…………………………………………………………………D+
The new home market deteriorated further this month, led by declining builder confidence and sales volumes and an increasing supply of unsold homes. The NAHB’s Housing Market Index declined in all regions and reached a new low in this cycle of 24, which is a 4-point drop from the previous month. Annualized new home sales through June decreased to an annual rate of 834,000, which is a drop of nearly 7% sequentially and 22% year-over-year decline. The months of supply of unsold homes rose to 7.8 months in June.

Housing Supply…………………………………………………………………….D+
The U.S. housing supply continues to decline, with annual permit activity falling to a 10-year low. Residential building permits fell 8% sequentially in June, and are now down 25% year-over-year to a seasonally adjusted annual rate of 1.4 million. We expect to see permits continue to fall, reaching 19993 levels of 1.2 million permits sometime next year. Housing completions also decreased this month, falling 28% in the last year, which should help in reducing the amount of new home inventory on the market. Housing starts increased to a seasonally adjusted annual rate of 1.47 million. This represents a sequential gain of 2% but a 19% year-over-year decline. Single-family starts remained flat this month at 1.15 million.

U.S. HOUSING MARKET STATISTICS

Data Current Through July 31, 2007

    

Grade*

Overall Grade

         

C-

                   

Statistic

    

Grade*

Economic Growth

C

These are the best indicators of how the economy is currently performing.

Real GDP (annual rate)

3.4%

C

Employment Growth (1-year Change)

  - Non-ag Payroll, NSA

1,822,000

C

Employment Growth Rate

  - Non-ag Payroll, NSA

1.3%

C

Unemployment Rate

4.6%

B-

Productivity

1.8%

C

Retail Sales

4.1%

C-

Inflation (core CPI)

2.2%

B

Personal Income Growth, nominal

6.1%

C-

Federal Deficit (last 12 mos., $mil curr.)

-$167,947

C

                   
                   

Statistic

    

Grade*

Leading Indicators

    

D+

These have all proven to be predictable early indicators of the direction of economic growth.

Leading Indicators Annual Growth Rate over Last Six Months

Leading Econ. Index

-1.3%

C-

ECRI Leading Index

5.4%

C

Manpower Net Employment Outlook

18%

C

Corporate Profits (pre-tax)

2.1%

C-

Interest Rate Spread

10-year Treasury

4.88%

2-year Treasury

4.69%

  Interest Rate Spread

0.19%

C-

Stock Market (Return over last 12 months)

  Dow Jones

18%

C

  S&P 500

14%

C

  NASDAQ

22%

C

  Wilshire 5000

15%

C

  S&P Super Homebuilding

-24%

D-

Crude Oil Price (Current $)

$74.18

D-

Inst. of Supply Managers Index

53.8

C

                   
                   

Statistic

    

Grade*

Mortgage Rates

    

C+

These statistics are probably the most important indicators of short-term housing market performance.

Conforming Mortgage Rates (contract rate; an additional 0.6 – 1.0 points are also paid up front by the borrower)

Mortgage Rates, fixed

6.69%

B+

Mortgage Rates, adjustable

5.69%

B-

  Fixed/Adjustable Spread

1.00%

D

  Fixed/10-year Spread

1.81%

C

Fed Funds Rate

5.25%

Percentage of Adjust. Loans

21.0%

C-

Subprime Index (ABX.HE.BBB-.06-02)

40.7

F

Fed Reserve Loan Officer Survey

16.4%

D

                   
                   

Statistic

    

Grade*

Consumer Behavior

    

C+

Consumer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt levels and job prospects affect the long-term outlook for housing sales.

Consumer Confidence Index

112.6

B-

Consumer Sentiment Index

90.4

C

Consumer Comfort Index

-8

C

Equity/Owned Home (2003$)

$145,850

A+

Median Household Income

$46,326

  - Growth Rate, nominal

4.5%

C

Revolving Cons. Credit per Household

$7,735

  - Growth Rate

5.7%

B

                   
                   

Statistic

    

Grade*

Existing Home Market

    

C

Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales market.

NAR Single-Family Median Home Price

$230,300

A+

NAR Single-Family Annual Price Appreciation

0.1%

D

Freddie Mac Annual Price Appreciation

4.4%

D+

Annual Sales Volume, SA

5,750,000

B

Months Supply of Unsold Homes, SA

8.8

D+

Purchase Mort. App. Index, SA

424.2

B+

Pending Home Sales Index, SA

102.4

D+

Homeownership Rate

68.2%

A-

Homeowner Vacancy Rate

2.6%

F

                   
                   

Statistic

    

Grade*

New Home Market

D+

High appreciation and low inventory would mean an excellent short-term outlook for the new home industry.

Housing Market Index

24

F

Multifamily Condo Market Index

23.1

F

Median Price, NSA

$237,900

A

Annual Appreciation Rate

-2.2%

D

Sales Volume, SA

834,000

C+

Months Supply of Unsold Homes, SA

7.8

D+

  Months of Homes Completed, SA

2.5

D+

  Months of Homes Under Const., SA

4.0

C-

  Months of Homes Not Started, SA

1.2

D+

                   
                   

Statistic

    

Grade*

Housing Supply

    

D+

High construction levels are good for the economy. However, if new supply exceeds demand, prices could fall.

New Housing Units Completed, SA

1,470,000

C

Housing Starts, SA

1,467,000

C

Single-family Permits, SA

1,019,000

C

Multifamily Permits, SA

387,000

D+

  Total Permits, SA

1,406,000

C

Manuf. Housing Placements, SA

92,000

F

  Total Supply, SA

1,498,000

D+

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One of the interesting facts that the graph at the top of this article shows is that the ease of getting a loan back in 2003-2005 really drove the real estate boom… which is now in our rear view mirror.  

Even though the real estate market now isn’t like it was 2 or 3 years ago… we are just correcting back to normal… and this is just a part of the regular real estate market cycle.

Once again, these real estate market indicators and ratings are brought to you in conjunction with John Burns Real Estate Consulting.

john burns real estate consulting

Check back soon for the August 2007 real estate market by market in-depth statistics.

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About the Author

Hey, my name is Trevor and I'm the founder of The REI Brain and editor/contributor. I started investing in real es.tate when I was 21... and love entrepreneurship, the internet, and real estate. My main focus today is growing my companies, systemizing my businesses so I can work less and make more, and spend more time with my family. Learn more about me at trevormauch.com.

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