Housing Chartbook April 2009

8/14/2019 Housing Chartbook April 2009

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This report is available on www.wachovia.com/economics and on Bloomberg at WBEC

SPECIAL COMMENTARY April 8, 2

Housing Chartbook: April 2009

Mark Vitner, Senior Econommark.vitner@wachovia.

704-383-

Adam G. York, Economadam.york@wachovia.

Closing in on a Bottom in 2009 704-715-Signs are beginning to emerge that suggest sales of new and existing homes are

moving toward a bottom. Actual sales figures took a positive turn in February andmortgage applications for the purchase of a home have increased in recent weeks asmortgage rates have tumbled. We expect sales to bottom this summer and look forsome modest improvement during the second half of the year. Such a turn of eventswould be consistent with past recessions, which saw home sales turn aroundapproximately six months before the broader economy did.

Home sales have turned up around the country, particularly in the hardest hitmarkets, where short sales and foreclosure sales account for a large proportion oftransactions. The National Association of Realtors (NAR) estimates that distressedsales have accounted for 45 percent of existing home sales in recent months, which isone reason why prices have fallen so sharply. The combination of falling home pricesand lower mortgage rates has made home ownership much more affordable. TheNAR Housing Affordability Index has surged more than 50 points over the past 6months and is at an all-time high.

ContentsHome sales bottoming out does not mean sales are about to turn decisively higher.While housing affordability has improved and investor sales (to investors rather thanspeculators) have increased, we doubt home sales will turn up in a decisive way untilemployment conditions improve. Our latest forecast has the unemployment raterising through the middle of next year. As a result, we do not see any real strengthreturning to the housing market until late next year or in 2011.

I. MortgageApplications .................4

II. Mortgage Rates &Affordability.................5

III. Housing Starts...6New home construction is in virtual free fall and we expect housing starts to contracta bit further as builders continue to work off excess inventories. The continued slidein residential construction reflects extremely tight credit conditions and builders

desire to bring inventories back in line with sales. Residential construction outlaysare expected to have declined at a pace of at least 35 percent or more in the firstquarter and are expected to fall at a 25 percent pace in the current quarter.

IV. Housing Permits7V. New Homes .......8VI. Existing Homes .9VII. Home Prices.....10

The plunge in homebuilding has brought the pace of single-family starts roughly inline with new home sales, which is something that has not happened in the history ofthese two series. While this might seem intuitively odd, new home sales include anarrower definition of transactions than housing starts by excluding houses built forrent, owner-built homes and houses that are built by a general contractor on theowners land. In contrast, all of these are included in single-family starts.

VIII. Credit Conditions11
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Housing Chartbook: April 2009April 8, 2009 SPECIAL COMMENTARY

Single-family Housing Starts vs. New Home SalesSeasonally Adjusted Annual Rate, In Millions

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

85 87 89 91 93 95 97 99 01 03 05 07 09

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Single-family Housing Starts: Feb @ 357KNew Home Sales: Feb @ 337K

Source: U.S. Department of Commerce and Wachovia

The sharper than usual decline in single-family starts relative to home sales driveshome how different this boom and bust are from what we have seen in the past. Evenusing the most conservative assumptions, single-family starts are now running belowreplacement demand, as they should. The number of vacant homes for sale or for rentis still running around two million units above what is considered normal.

Housing inventories actually increased late last year, with most of the increase invacant homes for rent. The supply of rental properties is being bolstered byconversions of condominiums into rental units. The same thing is happening to manysingle-family residences that were initially purchased by speculators hoping to makea quick profit. Now those properties are being bought at greatly discounted pricesthrough foreclosure sales and are being offered for rent.

Construction will remain constrained until inventories move back toward theirhistorical norms. Once again, we believe this will be late next year at the earliest. Inaddition to the oversupply of properties, household formations have slowed as morepeople are choosing to remain in school, stay at home with their parents or other

relatives or live with roommates. Household formations tend to pick up about a yearafter employment begins to rise, which means we may not see a materialimprovement in household formations until the middle of 2011.

While the news on the housing sector is no longer uniformly negative, we still believehome sales and residential construction face a long road to recovery. Housingremains in oversupply and prices will continue to fall until supply and demand areback in balance. We expect both sales and starts to bottom by the middle of this yearbut do not expect to see a strong recovery take hold until late next year or 2011.

2


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NationalEconomic&Finan

cialOutlook

Actual

Forecast

2005

2006

2007

2008

2009

2010

RealGDP,p

ercentchange

2.9

2.8

2.0

1.1

-2.9

0.8

NonfarmEm

ployment,percentchange

1.7

1.8

1.1

-0.4

-4.0

-1.4

UnemploymentRate

5.1

4.6

4.6

5.8

9.2

10.6

HomeConstruction

TotalHousingStarts,inthousands

2072.9

1811.9

1340.7

903.4

510.0

740.0

Single-Fam

ilyStarts,inthousands

1718.5

1473.6

1034.0

617.1

350.0

510.0

Multi-FamilyStarts,inthousands

354.4

338.3

306.7

286.3

160.0

230.0

HomeSales

NewHomeSales,Single-Family,inthousan

ds

1278.9

1049.3

768.0

482.3

360.0

400.0

TotalExistingHomeSales,inthousands

7075.7

6517.6

5673.8

4893.8

4400.0

4625.0

ExistingS

ingle-FamilyHomeSales,inthous

ands

6180.8

5711.7

4960.0

4340.8

3925.0

4100.0

ExistingC

ondominium&TownhouseSales,inthousands

894.8

805.9

713.8

553.0

475.0

525.0

HomePrices

MedianNewHome,$Thousands

234.2

243.1

243.7

230.2

198.0

195.0

Percent

Change

7.5

3.8

0.3

-5.5

-14.0

-1.5

MedianEx

istingHome,$Thousands

217.5

221.9

215.5

195.8

166.2

163.5

Percent

Change

12.8

2.0

-2.9

-9.2

-15.1

-1.6

FHFA(OFH

EO)HomePriceIndex,PercentChange

11.6

7.7

2.4

-2.6

-8.5

-3.0

Case-ShillerC-10HomePriceIndex,Percen

tChange

16.9

7.4

-4.4

-16.7

-13.5

-3.0

InterestRates-AnnualAverages

PrimeRate

6.19

7.96

8.05

5.08

3.25

3.35

Ten-YearT

reasuryNote

4.29

4.80

4.63

3.66

2.80

3.40

Conventional30-YearFixedRate,Commitm

entRate

5.87

6.41

6.34

6.04

4.85

5.10

One-YearARM,EffectiveRate,Commitment

Rate

4.49

5.54

5.56

5.18

4.90

5.00

Source:Federa

lReserveBoard,MBA,FHFA,NationalA

ssociationofRealtors,S&PCorp,U.S.

DepartmentofCommerce,U.S.DepartmentofLaborandWachovia


4/12


I. Mortgage ApplicationsFigure 1

Mortgage Applications for Purchase8-Week Moving Average, Seasonally Adjusted

0

100

200

300

400

500

92 94 96 98 00 02 04 06 08

0

100

200

300

400

500

Weekly Figure: Mar-27 @ 268.0Up From 267.8 on Mar-20Mort. Appl.: 8-Week Average: Mar 27 @ 253.38-Week Average Down 33.0% From Same Period Last Year

Applications Get Help from Lower RatesMortgage applications, especially those for refinancing, continue to get considerable

help from lower mortgage rates. With the Fed actively purchasing mortgage-backedsecurities as well as Treasury notes, interest rates have plummeted over the past fewweeks. Refinancing applications have been volatile but in general are moving higher.Still, credit availability remains a major concern. Borrowers who have limited equityor poor credit still face an uphill battle in securing a refinancing. Dedicatedgovernment programs and bank staffs are attempting to assist borrowers that aredelinquent or at risk, but these are taking time to work through the system.

Figure 2 Figure 3

Mortgage Applications8-Week Moving Average, Seasonally Adjusted

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009

0%

10%

20%

30%

40%

50%

60%ARMs Percent of Loan Applications (Value): Mar 27 @ 5.2%

ARMs Percent of Loan Applications (Volume): Mar 27 @ 2.0%

Mortgage Applications for Refinancing4-Week Moving Average, Seasonally Adjusted

0

2,000

4,000

6,000

8,000

10,000

12,000

92 94 96 98 00 02 04 06 08

0

2,000

4,000

6,000

8,000

10,000

12,000

Weekly Figure: Mar-27 @ 6,600Down from 6,600 on Mar-274-Week Average: Mar-27 @ 5,2334-Week Average Up 80.3% from Same Period Last Year

Source: Mortgage Bankers Association and Wachovia

4


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II. Mortgage Rates & AffordabilityFigure 4

Housing Affordability Index, NAR-Home SalesBase = 100

90

100

110

120

130

140

150

160

170

180

92 94 96 98 00 02 04 06 08

90

100

110

120

130

140

150

160

170

180

Housing Affordability Index: Feb @ 173.56-Month Moving Average: Feb @ 151.0

Affordability Soars, Does it Matter?

Affordability measures continued to soar through the first few months of 2009, but

our concerns about the relevance of the data remain. Clearly, the relevance of thiskey measure has been diminished by several key factors. Median home prices arebeing pushed sharply lower by distressed sales, which may be overstating the extentof price declines. Moreover, tighter credit standards and rising unemployment meanfewer consumers have access to todays low mortgage rates. So, while affordabilitymay be improving, buyers are not likely to return to the market in a major way untiloverall economic growth improves.

Figure 5 Figure 6

Payment on Median Priced Single Family HomeAs a Percentage of Family Income

14%

16%

18%

20%

22%

24%

26%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

14%

16%

18%

20%

22%

24%

26%

Payment as a Percent of Income: Feb @ 14.4%

Mortgage RateAverage Conventional 30-Year Commitment Rate

4%

5%

6%

7%

8%

9%

10%

93 95 97 99 01 03 05 07 09

4%

5%

6%

7%

8%

9%

10%

30-Yr Conventional Mortgage: Mar @ 5.00%

Source: Freddie Mac, National Association of Realtors, and Wachovia


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III.Housing StartsFigure 7

Housing StartsSeasonally Adjusted Annual Rate, In Millions

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

01 02 03 04 05 06 07 08 09

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Housing Starts: Feb @ 583K

With Winter Comes Volatility

Housing starts made a large and unexpected jump higher in February, and while anygood news is welcome in housing, we do not expect the gains to hold through spring.Winter always introduces considerable volatility for housing data and this maysimply be a one-month aberration. While it is premature to call an absolute trough, abottom is closer. Starts may hover near the half-million unit pace during the first halfof this year, but should begin to slowly climb during the second half. We areprobably two years away from seeing starts back above one million units, however,as we continue to struggle with excess inventory and a deep recession.

Figure 8 Figure 9

Housing Starts by RegionAs a Percent of Total Starts, 12- Month Moving Average

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

87 89 91 93 95 97 99 01 03 05 07 09

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Northeast: Feb @ 13.3%

Midwest: Feb @ 14.8%

West: Feb @ 21.6%

South: Feb @ 50.3%

Single & Multi-family Housing StartsSeasonally Adjusted Annual Rate, In Thousands, 3-Month Moving Average

0

200

400

600

800

1000

1200

1400

1600

1800

2000

87 89 91 93 95 97 99 01 03 05 07 09

0

60

120

180

240

300

360

420

480

540

600

Single-family Housing Starts: Feb @ 368K (Left Axis)Multi-family Housing Starts: Feb @ 171K (Right Axis)


6


7/12


IV.Housing PermitsFigure 10

Housing Permits(Cumulative Percent Decline from Peak)

February 2009

-67.5%

Permits Hit Hard by Market Troubles, but Showing Signs of Stability

The steady declines we have seen in permits over the past several years appear to have

stalled. While we have seen several similar periods over the past couple of years, mostrecently in summer 2008, there is at least some hope that this one may prove to be theactual trough. We are forming a bottom at extremely low levels that will prove verychallenging to the nations builders. Many are capital constrained. Unfortunately, even ifwe level out and hold this range, we are not looking for any near-term pick-up. Buildingactivity will most likely remain depressed for some time to come as we work through themassive inventory overhang and builders work to strengthen their balance sheets.

Figure 11 Figure 12

Building PermitsSeasonally Adjusted Annual Rate, In Millions

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

00 01 02 03 04 05 06 07 08 09

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Building Permits: Feb @ 564K

Single & Multi-family Building PermitsSeasonally Adjusted Annual Rate, In Thousands, 3-Month Moving Average

0

250

500

750

1,000

1,250

1,500

1,750

2,000

92 94 96 98 00 02 04 06 08

0

100

200

300

400

500

600

700

800

Single-family Building Permits: Feb @ 363K (Left Axis)

Multi-family Building Permits: Feb @ 184K (Right Axis)



8/12


V. New HomesFigure 13

New Home SalesSeasonally Adjusted Annual Rate - In Thousands

300

500

700

900

1100

1300

1500

89 91 93 95 97 99 01 03 05 07 09

300

500

700

900

1100

1300

1500

New Home Sales: Feb @ 337,000

3-Month Moving Average: Feb @ 343,333

New Home Sales Remain Depressed

Sales of new homes will likely continue to struggle during the first half of 2009 asemployment, economic concerns and mortgage market troubles, outweigh theimprovements in overall affordability we have seen. Declines in completions and ingeneral building activity mean less supply will be coming to the marketplace.Inventories may return to the equilibrium levels of the late 1990s by early thissummer. There are a number of powerful incentives to purchase a new home inplace today, including builder discounts, tax rebates for first-time home buyers andexceptionally low mortgage rates.

Figure 14 Figure 15

Single-family Housing CompletionsSeasonally Adjusted Annual Rate, In Millions

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

87 89 91 93 95 97 99 01 03 05 07 09

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Single-family Housing Completions: Feb @ 505K

Inventory of New Homes for SaleNew Homes for Sale at End of Month - In Thousands

250

300

350

400

450

500

550

600

97 98 99 00 01 02 03 04 05 06 07 08 09

250

300

350

400

450

500

550

600

New Homes for Sale: Feb @ 330,000


8


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VI.Existing HomesFigure 16

Existing Home ResalesSeasonally Adjusted Annual Rate - In Millions

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1999 2001 2003 2005 2007 2009

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Existing Home Sales: Feb @ 4.72 Million

Nearly Half of Existing Sales Still Distressed PropertiesThe National Association of Realtors estimates about 45 percent of recent sales

activity nationwide was either distressed or foreclosure-related. With distressedsales accounting for such a large proportion of activity, we could actually seereported sales fall off sharply if efforts to modify existing mortgages gain traction inthe next few months. Timing is difficult to estimate given the considerable lag of thedata, but we would not be surprised to see sales move lower from here. We wouldnot necessarily consider the declines to be a bad thing considering the source of thedownturn. The moratoriums, however, may extend the recovery period.

Figure 17 Figure 18

Pending Home Sales IndexYear-over-Year Percent Change

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2002 2003 2004 2005 2006 2007 2008 2009

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Year-over-Year Change: Feb @ -1.4 %

Inventory of Existing Homes for SaleExisting Homes for Sale at End of Month, In Thousands

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1999 2001 2003 2005 2007 2009

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Total Inventory: Feb @ 3,798,000

Source: National Association of Realtors and Wachovia


10/12


VII. Home PricesFigure 19

Home PricesYear-over-Year Percentage Change

-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

97 99 01 03 05 07 09

-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

Median Sale Price: Feb @ $164,600

Median Sale Price, 3-Month Moving Average: Feb @ -15.4%

FHFA Purchase Only Index: Jan @ -6.3%

S&P Case-Shiller Composite-10: Jan @ -19.4%

Price Slide Continues

The slide in home prices has continued through the first part of the New Year. Asurprising jump in the FHFA (OFHEO) index for the month of January raised somehope but we absolutely do not expect this jump to turn into a sustained increase. Thepilling on of supply from builders, foreclosed properties and distressed sales willcontinue to pressure prices, but the gain may give some hope that the pace of declinewill slow in the coming months. Though we do not expect to see housing pricesbottom until the second half of this year or the first half of next year at the earliest;the worst of the decline is clearly behind us.

Figure 20

S&P/Case-Shiller Single Family Home Resale Value

(January 2009)

MSA

Yr/Yr

% Change MSA

Yr/Yr

% Change MSA

Yr/Yr

% Change

Dallas -4.9% Atlanta -14.3% San Diego -24.9%

Denver -5.1% Seattle -15.0% Los Angeles -25.8%

Cleveland -5.2% Chicago -16.4% Miami -29.4%

Boston -7.3% Washington, DC -19.3% San Francisco -32.4%

Charlotte -8.2% Minneapolis -20.4% Las Vegas -32.5%

New York City -9.6% Detroit -22.6% Phoenix -35.0%

Portland -14.0% Tampa -23.3%

U.S. - 10 -19.4% U.S. - 20 -19.0%

Source: FHFA, National Association of Realtors, S&P Corp. and Wachovia

10


11/12


VIII. Credit ConditionsFigure 21

Net Percent of Banks Tightening StandardsMortgages for Individuals

-20%

0%

20%

40%

60%

80%

100%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

-20%

0%

20%

40%

60%

80%

100%

All Mortgages (Through Q1-2007)Prime Mortgages: Q1 @ 47.1%Subprime Mortgages: Q1 @ 50.0%Nontraditional Mortgages: Q1 @ 48.0%

Access to Credit Will Be a Problem for Months to Come

Credit standards remain exceptionally tight. Just about half of loan officers indicated

they were tightening standards in the first quarter; this is on top of all the tighteningthat has already occurred. The continued caution by lenders is understandable giventhe continued rise in delinquency rates and foreclosures. Much of the earlier rise inforeclosures was due to lax underwriting of nontraditional mortgage products. Morerecently, rising unemployment has pushed up delinquency rates on conformingmortgages. With unemployment expected to continue rising well into 2010,delinquency rates are certain to rise even higher.

Figure 22

Subprime ARMs 60+ DelinquenciesPercent Delinquent by Vintage

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 6 11 16 21 26 31 36 41 46 51

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2005

2006

2000

2007

2001

Figure 23

Conventional Mortgage DelinquencyPercent of Loans Past Due, Seasonally Adjusted

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

1998 2000 2002 2004 2006 2008

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

Total Prime: Q4 @ 5.1% (Left Axis)

Total Subprime: Q4 @ 21.9% (Right Axis)

Source: Federal Reserve Board, Mortgage Bankers Association, Wachovia Securities and Wachovia


12/12

Wachovia Economics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Sam Bullard Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Adam G. York Economist (704) 715-9660 [email protected]

Tim Quinlan Economic Analyst (704) 374-4407 [email protected]

Kim Whelan Economic Analyst (704) 715-8457 [email protected]

Yasmine Kamaruddin Economic Analyst (704) 374-2992 [email protected]

Wachovia Economics Group publications are published by Wachovia Capital Markets, LLC (WCM).WCM is a US broker-dealer registered with the US Securities and Exchange Commission and a member ofthe New York Stock Exchange, the Financial Industry Regulatory Authority, and the Securities InvestorProtection Corp. This report is for your information only and is not an offer to sell, or a solicitation of anoffer to buy, the securities or instruments named or described in this report. Interested parties are advisedto contact the entity with which they deal, or the entity that provided this report to them, if they desirefurther information. The information in this report has been obtained or derived from sources believed by

Wachovia Capital Markets, LLC, to be reliable, but Wachovia Capital Markets, LLC, does not represent thatthis information is accurate or complete. Any opinions or estimates contained in this report represent the

judgment of Wachovia Capital Markets, LLC, at this time, and are subject to change without notice. 2009 Wachovia Capital Markets, LLC.
mailto:[email protected]:[email protected]

Documents

Housing Chartbook April 2009