Nov252013
West LA’s most desirable places to live
What makes a city a desirable place to live? Is it history, culture, climate, the “vibe,” or is it something more tangible that can be weighed or measured? We could readily compile a short list of quaint or fashionable communities and argue about their subjective qualities. Publications trying to be hip or trendy do this periodically. But in the end, these articles make people feel good about living in one place or another, but they settle nothing.
So how can we carefully measure desirability in a way that allows comparisons between one community and another? Do we take a poll and tally the results? Such an effort might reveal which cities have the most fervent admirers because those would be who bothered to answer the poll questions, but what we would end up with is an aggregation of people’s opinions, hardly something we would find a reliable indicator of desirability.
People put their money where their desire is
I believe the most accurate measure of a place’s desirability is comparing how much people spend to live there. People may say they prefer Santa Monica to Venice in polls, but when people vote with their pocketbook, their opinions carry real weight, sometimes a extravagantly burdensome weight.
If we quantify how much people spend to live in an area, we effectively measure desirability. We can use several financial measures such as median sale price, dollars-per-square-foot, or rent. Some of these measures reveal more than others. The table below ranks the major cities in West LA by the median resale price and monthly cost of ownership. The reason to use this measure is simple: People will only pay a princely sum to own property if the area is regally desirable. By this measure, Beverly Hills leads the way.
In my opinion, this measure doesn’t tell the full story. Beverly Hills sports the highest resale price, but one of the lowest dollars-per-square-foot measures of the major desirable cities. People are buying in Beverly Hills because they want the big yard and house. However, if we examine the beach towns listed just below (Pacific Palisades, Malibu, Manhattan Beach, and Venice), we see people are willing to pay much more money for much less space. In fact, they pay 40% to 50% more for the same square footage. People who live in those communities value location and climate over size and opulence.
Another problem with measuring by the cost of ownership and resale prices is that people will often buy real estate for reasons having little to do with the desirability of actually living in a given location. Many foreign investors buy a Beverly Hills mansions or a Malibu beachfront cottages as investments. Many of these investors don’t live there. So how do we eliminate the investment factor and look purely at desirability as a place to live? We look only at rents.
If people spend heavenly sums to live in an area with no hope of making that money back by timing the real estate market, then that place must be special. Rent is pure consumption. People will only consume what they find desirable, so ranking cities by the highest rents is arguably the best measure of desirability of a given city. On that measure, Venice reigns supreme.
So is Venice the most desirable city in West LA? I don’t know. All cities on the list below are great places to live, but people renting in Venice spend over $4,000 a month for this privilege. For that kind of money, it better be great.
Los Angeles County Housing Market Update
The house price rally in Los Angeles County has been even stronger than Orange County. In the last year, the market when from extremely undervalued to just slightly undervalued, and the price increase has been extraordinary.
As with other markets in Southern California, it will be difficult for lenders to fully reflate the housing bubble in Los Angeles County because the ceiling of affordability has already been reached. Perhaps with the all-cash investor share now exceeding 50%, prices may push through this ceiling — at least temporarily. Eventually, those all-cash investors will need a financed buyer to sell to, and if they push up prices too high, they will need to discount it for a financed buyer to take them out of the trade.
The rate of price increase actually picked up in 2013. My data uses a moving average, so the dramatic increases from March through June are still showing up as rising prices now. These readings will level off over the next several months as recent readings are no longer climbing. Based on the $/SF measure of value, a measurement not influenced much by the change in product mix, LA County is up an astonishing 41.8% over the last year.
Rent increases have been steady but moderate, most likely due to the increasing stock of rental homes and apartments entering the market. High house prices will put further pressure on rents as people who want to live in the area and can’t afford to buy have no option other than to rent. When you compare the rate of rental increase of 2.5% to the rate of home price appreciation of 41.8%, any arguments about fundamentals driving this rally appear rather silly.
I find this chart of the historical cost of ownership and rents very revealing. The housing bubbles are obvious, and the stable period between the bubbles establishes a clear base value. The overshoot to the downside also stands out. We are not back at fair value for the Los Angeles County Market.
The chart below is a measure of relative over- or under-valuation. As you can see, we are returning to fair value very quickly.
Like Orange County, Los Angeles County had one period in the mid 90s when market ratings were good, and the recent undervalued conditions prompted the market rating to issue a strong buy signal. Although the market is not as good as it was, it’s still a very good time to buy in Los Angeles County.
Loaning someone money who doubled their original mortgage is a bad idea
The former owners of today’s featured property were Ponzis who timed the market well. They bought this property at the bottom of the last housing recession, and they rode the equity wave of the housing bubble squandering as they went. What started out as a $288,000 mortgage debt in 1998 ballooned to a income-draining $750,000 by 2005. $472,000 over 7 years is a healthy rate of HELOC abuse.
If you knew these borrowers irresponsibly HELOCed themselves so profusely, if they sobbed to you about their dire need for more HELOC crack, would you give them money? Ostensibly, it would be a loan, but your likelihood of repayment absent a foreclosure looks bleak. Well, someone made that decision and loaned them $25,000. They promptly quit paying the mortgage and squatted for four years until the bank finally foreclosed. Perhaps they paid back the private-party lender during that time. Four years of payment-free living provides some resources, but if I were to venture a guess, I suspect the friend got nothing.
[idx-listing mlsnumber=”OC13235880″]
30732 CALLE BARBOSA Laguna Niguel, CA 92677
$729,900 …….. Asking Price
$360,000 ………. Purchase Price
7/22/1998 ………. Purchase Date
$369,900 ………. Gross Gain (Loss)
($58,392) ………… Commissions and Costs at 8%
============================================
$311,508 ………. Net Gain (Loss)
============================================
102.8% ………. Gross Percent Change
86.5% ………. Net Percent Change
4.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$729,900 …….. Asking Price
$145,980 ………… 20% Down Conventional
4.37% …………. Mortgage Interest Rate
30 ……………… Number of Years
$583,920 …….. Mortgage
$146,646 ………. Income Requirement
$2,914 ………… Monthly Mortgage Payment
$633 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$152 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$90 ………… Homeowners Association Fees
============================================
$3,788 ………. Monthly Cash Outlays
($685) ………. Tax Savings
($787) ………. Principal Amortization
$233 ………….. Opportunity Cost of Down Payment
$111 ………….. Maintenance and Replacement Reserves
============================================
$2,660 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,799 ………… Furnishing and Move-In Costs at 1% + $1,500
$8,799 ………… Closing Costs at 1% + $1,500
$5,839 ………… Interest Points at 1%
$145,980 ………… Down Payment
============================================
$169,417 ………. Total Cash Costs
$40,700 ………. Emergency Cash Reserves
============================================
$210,117 ………. Total Savings Needed
[raw_html_snippet id=”property”]
[raw_html_snippet id=”newsletter”]
US banks warn Fed interest cut could force them to charge depositors
Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
Depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households.
The warning by bank executives highlights the dangers of one strategy the Fed could use to offset an eventual “tapering” of the $85bn a month in asset purchases that have fuelled global financial markets for the last year.
Minutes of the Fed’s October meeting published last week showed it was heading towards a taper in the coming months – perhaps as soon as December – but wants to find a different way to add stimulus at the same time. “Most” officials thought a cut in the interest on bank reserves was an option worth considering.
Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.
Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.
“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.
Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.
“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”
The danger of negative rates has deterred the Fed from cutting interest on bank reserves in the past. If it were to do so now, it would most probably expand a new facility that lets banks and money market funds deposit cash at a small, positive interest rate. That should avoid any need for banks to charge depositors.
About half of the reserves come from non-US banks that do not have to pay the deposit insurance fee. Their favourite manoeuvre is to take deposits from money market funds and park them overnight at the Fed, earning millions of dollars risk-free. Cutting the interest on reserves would stop that.
Lowering interest on reserves would also affect money market funds, said Alex Roever, head of US interest rate strategy at JPMorgan.
“[It] would decrease the incentive for those banks to borrow in the money markets, which in turn could leave money market funds short of certain investments and force them to bid up the price of their next best options,” he said.
Richard Gilhooly, strategist at TD Securities, highlighted some benefits to the Fed from the possible cut: “[It] would not only anchor short-term rates near zero, it also stands to boost the profits for the Fed as they pay less interest to banks,” he said.
One of a myriad of unintended consequences of ZIRP. This is criminal.
Everyday as the economy sucks ass further, more people are understanding that.
As I’ve said it before; as more people figure this out, as Wall Street rejoices further, and the TBTF banks become larger, the largest worry the FOMC scumbags have is NOT inflation or unemployment … but rather public stability. A day of reckoning is coming.
Charging customers for deposits is a joke. If my bank started charging me for deposits, I would immediately close my accounts. If I couldn’t find another bank willing to pay me something, or at least charge me nothing, I would store the money in a safe at home. Screw them.
I do not know about now, but previously Private Swiss Banks charged to keep cash. They did not charge if you kept funds as stocks, precious metals (that you buy through them), bonds or other non-cash assets; as long as they made a commission.
Fees are what you charge when you can’t charge negative interest rates. The fact is, the banks are wanting to steal from the middle class one more time and it is sick.
If I deposit money in a bank it is a loan. I get no respect for that loan. I deposit the loan money to the bank, and I have to pay for it. Better to keep the money at home.
I think this is the first time you and I have every agreed on something. I can’t believe these banks have the nerve to even suggest such a thing. Why would anyone keep their money in a bank if you had to pay for the privilege?
Bidding Wars Resume in Major Markets in October
Despite a softening market, competition among buyers remained fairly fierce in October, Redfin reported in its Real-Time Bidding Wars release for the month.
Last month, 55.9 percent of offers written by the Seattle-based brokerage’s agents faced competition from other buyers, a decline from 58.3 percent in September. Bidding wars have been on a downward slope since peaking at 79 percent in February.
October was also the third consecutive month to see a drop in competition compared to the same month last year, Redfin said.
Even with the decline, though, competition last month was higher than expected, given the effects of the government shutdown on consumer confidence.
“While many Americans paused their home-buying and selling plans during the shutdown, overall demand in October was more robust than expected, with home tours and offers rebounding once the government reopened,” said Redfin analyst Rachel Musiker. “This unexpectedly strong demand paired with dwindling inventory likely kept competition from falling even further in October.
Bid Wars Wane in U.S. Housing Markets on Supply Rise
Mike Imgarten witnessed a frenzy of demand and a dearth of inventory during a two-month house hunt in Sacramento, California. Fearing he would pay too much after a surge in prices, he said he took a break from searching in June.
Sales in Sacramento now are off by more than 25 percent from a year ago and, while inventory remains tight, the supply of homes on the market has almost doubled, according to Erin Stumpf, Imgarten’s real estate agent.
“Several homes I drive by on my way to work have had for-sale signs up for a couple months, while before, they’d be gone within a week,” said Imgarten, a 29-year-old civil engineer.
In states such as California, Arizona and Nevada, where bidding wars have fueled the country’s largest gains in home prices, booming markets are showing signs of cooling as buyers like Imgarten step back. The surge in values, combined with higher mortgage rates, is reducing affordability while also encouraging more sellers to list their properties, indicating that price growth will slow after the biggest increases since 2006.
“We are shifting from a frenzy to where buyers are taking a step back and being more analytical and unwilling to just make rash decisions,” said Ellen Haberle, an economist for Redfin.
While the pullback coincides with the time of year when sales typically slow across the country, the dropoff in heated areas such as Phoenix is far greater than expected, Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University, said in a telephone interview.
“We have buyers, but they’re on strike,” Orr said. “This caught everybody by surprise, including me. The suddenness has made a lot of Realtors uneasy.”
It is about time the sheeple stopped making rash decisions. There are no first time home buyers. Eventually there could be a massive crash, and upside down all over again. Brilliant statement, like Yogi Berra!
Negative Equity: A New Way of Life in the Recovery
Fast-paced price increases have helped bring many underwater homeowners afloat. In the third quarter, 1.4 million homeowners rose to the surface as their home values once again outranked their equity, according to the Zillow Negative Equity Report released Thursday.
The third quarter drop in negative equity rate was the largest on Zillow’s record, which dates back to the second quarter of 2011.
The negative equity rate now stands at 21 percent, down about one-third from its peak of 31.4 percent and from 23.8 percent in the second quarter, according to Zillow.
“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter,” said Stan Humphries, chief economist at Zillow.
“We should feel good that we’re moving in the right direction and at a fast clip,” Humphries said.However, with analysts—including Humphries– predicting moderating price gains in the coming year, that “fast clip” is set for decline.
In fact, Humphries says negative equity will remain a persistent trait of the housing market and become “part of the new normal” for several years.
Loan Delinquencies up Steadily Since April
The foreclosure inventory rate is down almost 30% from last year and 26% from the beginning of 2013 as the housing market stabilizes and fewer homes fall into a state of distress, Lender Processing Services (LPS) said Friday.
The company’s First Look Mortgage Report from LPS found that the loan delinquency rate fell 2.8% from the prior report to 6.28% in October.
Additionally, after 18 months of continuous decline, the inventory tumbled to its lowest level since the end of 2008 and fell to 1.28 million loans, or just 2.54% of currently active mortgages.
In its mortgage report, LPS took a closer look at loan level data from its database, examining 70% of the overall mortgage market.
Meanwhile, year-over-year delinquencies dropped 10.69% from October 2012.
The total foreclosure pre-sale inventory rate continued to mend and hit 2.54%, declining 3.23% month-over-month and 29.61% year-over-year.
A spokesperson for LPS noted that while delinquencies are down 2.8% from last month they are not quite at the lows witnessed back in April (6.21%), May (6.08%) or August (6.20%), but they are heading in that direction.
I wonder if I’ll be in a position to pay income taxes that are greater than my cash flow?
Proposed tax law changes for you investors
Repeal of the tax rules for like kind exchanges.
The depreciation period for structures, residential and commercial, would be extended to 43 years. This marks a large increase for residential rental property, which holds a 27.5 year period under present law. There would also be longer depreciation periods for all other kinds of assets, including building components.
The section 179D deduction for energy efficient commercial and multifamily property improvements would be repealed.
Recaptured depreciation would no longer be taxed at 25% for some rental property owners, but instead would be taxed at ordinary rates (proposed ordinary rates have not been published).
The home construction contract exception, that allows builders to pay income taxes on home sales after the actual sale (the completed contract method) when the construction period spans two or more years, would be repealed. However, builders would still be able to use the completed contract method provided their average annual gross receipts for the prior three years were less than $10 million (indexed to inflation in 2015).
Advertising expenses would no longer be immediately deductible as a business expense. Under the proposal, 50% of advertising expenses would be capitalized and claimed over a 5 year period, with the remaining 50% available for immediate write off.
Huge Taxpayer Gifts of Free Money to Loanowners Expected Soon
Analysts expect to see a new face at the helm of the agency overseeing Fannie Mae and Freddie Mac now that Democrats in the Senate have changed the rules, eliminating the use of the filibuster to block presidential appointments.
The Senate majority’s instatement of the so-called nuclear option “has cleared the path for Mel Watt’s confirmation” as director of the Federal Housing Finance Agency (FHFA), according to secondary market analysts at Barclays.
Under the chamber’s new rules, the president’s nominees for all positions except Supreme Court judge can be approved with a simple majority vote, rather than the previous requirement of 60 “yay” votes.
Rep. Mel Watt (D-North Carolina) received 56 votes in favor of his confirmation on October 31st, just 4 votes shy of the number needed under the old rules but enough to be confirmed under the new simple-majority requirement.
“[H]e has the required votes and should be confirmed as the new FHFA director. In our view, this raises the level of policy risk,” Barclays said, “as we would generally expect him to be more supportive of the administration’s policies. … [K]ey areas of concern would be principal forgiveness for the GSEs and potential expansion of the HARP [Home Affordable Refinance Program] eligibility date.”
Watt and the administration have previously expressed support for using principal forgiveness as part of the Home
Affordable Modification Program (HAMP) waterfall for GSE loans, Barclays notes. While Acting Director Edward DeMarco has resisted its implementation to date on the argument that the taxpayer benefits would be too small, under Watt’s direction, Barclays expects the FHFA to “take a fresh look at the administration’s proposal and be more amenable to implement it.”
In addition, with Watt’s confirmation, Barclays says the administration may renew its push to expand the HARP cut-off date by a year. An extension of the HARP eligibility date would significantly increase the pool of HARP-eligible loans from the 2009 and 2010 vintages carrying interest rates above the 4.5 to 5 percent range, according to Barclays’ analysts.
“We estimate that these cohorts would likely see as much as a 50 percent increase in borrower eligibility,” they said.
Just fantastic. Moral Hazard will be complete.
Free Money!
S&P: Principal reductions perform better than rate decreases
Only 10% of loan modifications studied by CoreLogic (CLGX) in the past four years involved principal writedowns, while interest rate reductions remained the preferred tool for minimizing the risk of foreclosure across the United States.
But analysts with Standard & Poor’s Ratings Services claim in a new study that principal reductions overall perform much better than loans receiving a mere interest rate reduction.
In a report titled, “How Principal and Interest Rate Modifications Affect U.S. RMBS,” the ratings giant notes that the recidivism rate – or likelihood of a new default – hovers above 50% for rate reductions, while borrowers who obtain the benefit of a write-down and equity gains, generally have a better chance of staying current on their mortgages afterward.
The only problem is what benefits the borrower is often a nuisance for investors in residential-mortgage backed securities.
If a borrower obtaining a write-down does fail to pay and re-defaults, S&P says the eventual liquidation of the home will lead to higher loss severity rates for RMBS investors.
In fact, the resulting losses will be worse than if the home had just been foreclosed on early on.
While rate reductions carry their own risk, principal reductions will automatically cause a reduction in credit enhancements, leaving bondholders to face greater exposures on collateral losses, S&P pointed out.
Pending Home Sales Collapse At Fastest Pace Since April 2011, Drop To December 2012 Levels
Despite the downtick in rates for a month or two, the housing ‘recovery’ appears to have come to an end. This is the fifth consecutive monthly decline in pending home sales and even though a smorgasbord of Wall Street’s best and brightest doth protest, it would appear the lagged impact of rising rates is with us for good (as the fast money has left the flipping building). This is the biggest YoY decline since April 2011 as NAR blames low inventories and affordability for the poor performance. Perhaps more worrying for those still clinging to the hope that this ends well is the new mortgage rules in January that could further delay approvals.
How do you link an article from another site to the text that you type here? An example is a couple posts above this that says, “Pending Home Sales …”, and when you click on the text, it takes you to the article.
This is a code you can use.
title
Add the hyperlink between the quotes. It should work.
OK, let me try that again.
title
Thanks you
[bracket] a href =”url”> Headline [bracket]/a>
if you want it really bold, but h3 and /h3 inside brackets and around the “a href” statement.
I just had an idea. The best way to attract greater enrollment numbers in the new government insurance exchanges is to make sure that millions of private policies now in effect, are canceled.
Perhaps that was their plan all along.
Backlash by the Bay: Tech Riches Alter a City
SAN FRANCISCO — If there was a tipping point, a moment that crystallized the anger building here toward the so-called technorati for driving up housing prices and threatening the city’s bohemian identity, it came in response to a diatribe posted online in August by a young Internet entrepreneur.
The author, a start-up founder named Peter Shih, listed 10 things he hated about San Francisco. Homeless people, for example. And the “constantly PMSing” weather. And “girls who are obviously 4s and behave like they’re 9s.”
The backlash was immediate. Fliers appeared on telephone poles calling Mr. Shih a “woman hatin’ nerd toucher.” CheapAir offered him a free ticket back to New York. Readers responded that what they hated about San Francisco were “entitled” technology workers like him.
Mr. Shih, who said he received death threats after the post, deleted it and apologized.
But a nerve had been struck. As the center of the technology industry has moved north from Silicon Valley to San Francisco and the largess from tech companies has flowed into the city — Twitter’s stock offering unleashed an estimated 1,600 new millionaires — income disparities have widened sharply, housing prices have soared and orange construction cranes dot the skyline. The tech workers have, rightly or wrongly, received the blame.
Resentment simmers, at the fleets of Google buses that ferry workers to the company’s headquarters in Mountain View and back; the code jockeys who crowd elite coffeehouses, heads buried in their laptops; and the sleek black Uber cars that whisk hipsters from bar to bar. Late last month, two tech millionaires opened the Battery, an invitation-only, $2,400-a-year club in an old factory in the financial district, cars lining up for valet parking.
Lots of shills around OC coming out of the woodwork of late peddling ARMs, so even a caveman could easily discern that demand is likely much weaker than what’s being reported. just say’n 😉
Chinese buying up California housing
At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, but the customers are largely Chinese.
“They see the market here still has room for appreciation,” said Irvine-area real estate agent Kinney Yong, of RE/MAX Premier Realty. “What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.”
Yong’s phone has been ringing off the hook, with more than 5,000 new homes slated for the nearby Great Park Neighborhood. Most of the calls are from overseas, but prospective buyers are not looking solely for financial returns on the real estate.
“We are seeing a lot of Asians who are buying as an investment, but their kids are going to school here, so kids live in the home. They are looking at it more as an investment in education,” said Emile Haddad, CEO of Fivepoint Communities, developer of the Great Park Neighborhood.
That is Brian Yang’s plan. Speaking from his home in China, Yang said he purchased a home in Irvine this year, but he will wait five years, until his daughter turns 10, before moving his family to the U.S. He has several reasons for taking the leap.
“Education in America is very good and world class, so the first one is for education, and I think the second one is for the property appreciation,” explained Yang.
Video.
Chinese buyers flock to NYC
Dolly Lenz, Dolly Lenz Real Estate founder, discusses the influx of Chinese investors into the New York City real estate market. Lenz says Chinese buyers know more about the market than anybody.
I agree that the majority of shoppers at the Great Park are Asian-language speakers, but are they the majority of buyers? What percentage of these homes are being bought with cash from foreign speculators? I’m following the Great Park closely, and the second phases in a couple developments I’m interested in aren’t sold-out weeks after pricing was released.
When the Irvine Company rolled out its new home collection in 2010, they experienced the same thing. They sold out much of the first phase to foreign buyers and exhausted that source of demand. Subsequent phases sold out much more slowly because they had to sell to locals who worked.
The recovery in housing is looking surprisingly shaky
THE city that proved that America’s housing market is rising from the ashes was, fittingly, Phoenix. From property-bubble peak to post-financial crisis trough, house prices in Arizona’s biggest metropolis plunged by more than half, as demand dried up and foreclosures soared. But low interest rates and slowly reviving consumer confidence, plus a bunch of private-equity firms convinced there was an opportunity in buying up homes cheaply, eventually brought the market back to life. By September the median sale price of a single-family home in the Greater Phoenix area was $199,000, up 33% in a year.
Yet lately not all the signs from Phoenix have been positive. Initially, house prices and sales rose together. But according to a recent report by the Centre for Real Estate Theory and Practice at Arizona State University, they have started to diverge. In September the number of single-family homes sold was 9% lower than in the same month a year earlier; sales of town houses and condos were flat. Since July the Greater Phoenix market has “cooled dramatically”, thanks to a steep fall in demand. In 2014, the report predicted, prices will rise more slowly than the “furious pace we have witnessed over the past two years.”
A similar picture is emerging elsewhere, especially in cities where price and sales growth had been strong. The monthly index of housing conditions published by the National Association of Home Builders and Wells Fargo, a bank, published on November 18th, was flat since October and down from 59 in July to 54 now. (That is slightly positive; a score of 50 would mean that builders are evenly divided as to whether conditions are good or bad). The Case-Shiller index, which tracks house prices in 20 big cities across America, reported year-on-year price growth of 12.8% in August, but also noted an abrupt slowing of the monthly rate of growth as 16 of those cities reported more modest price increases in August than in July. In October the Federal Reserve noted that the “recovery in the housing sector slowed somewhat in recent months.” This set the stage for the release of data on November 20th that showed a sharp 3.2% fall in sales of existing homes in October.
This is probably evidence of “stalling, rather than a reversal”, says Jim O’Sullivan of High Frequency Economics, a research firm. Would-be buyers are coming to terms with costlier mortgages; long-term mortgage-interest rates are up by a percentage point since the early summer. That can be a drain on a tight household budget. The housing-affordability index published by the National Association of Realtors, which combines average mortgage costs, average home prices and average family income, is down to 164 from a high of 214 in January, which is significant. Yet housing remains far more affordable than the historic average of around 125, which means that the recovery is likely to pick up before long, says Mr O’Sullivan.
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