Home Sales Data Pushing New Lows

posted on August 26th, 2010 filed under: Real Estate Market Data

The federal government’s $8,000 homebuyer handout created a wave of sales.  But for every wave, there’s a trough.  What goes up must come down, eh?

[youtube]http://www.youtube.com/watch?v=kK62tfoCmuQ[/youtube]

The National Association of Realtors reported that sales of existing homes hit a new low for this downturn.  The evaporation of sales activity is a predictable result of the $8,000 government handout for homebuyers that is in the process of expiring.  Contracts were to be signed by April 30 and closings were to occur by June 30.  The latter deadline was extended to September 30, but there probably aren’t many handout-generated deals left in the pipeline at this point.

U.S. Existing Home Sales -- July 2006 to July 2010

New-home sales appear set to plumb new depths as well.  These sales are registered at the time of contract signings, not closings, so they tend to peak in the spring or early summer so people can close and move during the summer.  With July’s numbers just a smidge above the absolute low for the downturn, new lows will likely be plumbed over the coming months.  Could see a number in the teens before it’s over.

U.S. New Home Sales -- Jan. 2000 to July 2010

Here’s the full data series going back to the beginning of record-keeping in 1963.

U.S. New Home Sales -- Jan. 1963 to July 2010

Real estate in Miami and Coral Gables has generally followed the national pattern, and indeed the Florida Association of Realtors reports that there were 593 single-family home sales in the Miami metro area in July, down from a handout-goosed 727 in May.  But 593 is still more than double the measly 244 house sales at the cycle low for Miami in February 2009.  So the Miami and Coral Gables markets may be holding up a bit better than the nation as a whole during this post-handout trough.

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10-Year Treasury Yield Collapses, Mortgage Rates Follow

posted on August 21st, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

As noted previously (see Mortgage Rates May Drop Again, May 6, 2010), the rate on a 30-year fixed mortgage is closely related to the yield on the 10-year U.S. Treasury note.  When the yield on the 10-year rises, mortgage rates go up, and vice versa.

Lately, it’s been all about the vice versa.  The 10-year yield has collapsed on renewed fears of economic weakness, deflation, and impotence trumping stimulus.  The yield is now back to where it was in spring 2009 when the stock market bottomed amid widespread despair.

U.S. 10-Year Treasury Yield (Aug. 2005 to Aug. 2010)Source: Yahoo! Finance

That’s good news if you want a mortgage to buy a home in Miami or Coral Gables, because the rate on a 30-year conventional mortgage is hitting its own new lows in the 4.5% range.  Of course, the question is whether home prices in Miami and Coral Gables will fall further if the bond market is right about the severity of renewed economic weakness.  It doesn’t make sense to buy a depreciating asset with borrowed money, no matter how cheap the financing.

Mortgage Rates -- 30-Year Fixed -- Aug. 2005 to July 2010

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Friday Fountain Photo

posted on August 20th, 2010 filed under: Fountains

Fountain in the plaza of the Shops at Midtown Miami.  (Romero Britto sculptures like the one in the background are ubiquitous in Miami.)

Miami Real Estate Photos -- Fountain -- Shops at Midtown Miami (2)

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Firm Demand for Real Estate in the Golden Triangle Neighborhood Near Biltmore Hotel in Coral Gables

posted on August 20th, 2010 filed under: Properties in Focus

A steady supply of buyers is supporting the real estate market in the Golden Triangle neighborhood of Coral Gables, near the Biltmore Hotel.  Recent sales illustrate the reasonably firm demand for older homes with character.

The home at 3408 Toledo Street sold for an even $900,000, or about $273 per square foot.  The previous sale was in 1993 for $388,000, so the recent sale represents about 4.9% annual appreciation over the last 17 years.  That’s pretty normal, not any kind of fire sale, especially considering that the house could use some updating.

3408 Toledo St.

3408 Toledo St.

The home at 923 Escobar Avenue sold for $930,000.  The previous sale was in 2007 for $769,500.  According to the sales pitch, a whole lot of money was spent on improvements, so the seller did not exactly perform a miracle by making a big profit in a down market.  But at $347 per square foot, the buyer paid a handsome price.

923 Escobar Ave.

923 Escobar Ave.

Two other homes in the Golden Triangle area of Coral Gables were listed recently and quickly disappeared from the market.  You can assume they are under contract.

The property at 1115 Anastasia Avenue, across from the entrance to the Gables Stage theater at the Biltmore Hotel complex, was advertised for just under $1 million.  It has 5 bedrooms and 3 baths, if you count the little maid’s quarters by the garage.  Lots of character inside, but lots of termite damage too.  The seller reportedly got a cash offer reasonably close to full price, from a buyer with peculiar reasons for wanting to be as close to the Biltmore as possible.

Another sale that seems to be in the works is at 3717 Toledo Street.  For this run-down, older house with character, the sellers were reportedly seeking at least $850,000.  Interest seemed strong, and they probably got at least that much, despite the need for a couple hundred thousand dollars’ worth of renovations.

3717 Toledo St.

3717 Toledo St.

Granted, these old Coral Gables homes probably would have sold for more a few years ago at the height of the real estate bubble.  But today’s buyers are hardly getting bargains.  These are not elite luxury homes.  Residents in the area are typically white-collar workers and retirees, not international jet-setters.  Paying $900,000 for a home implies about $90,000 a year in ownership costs — maybe $80,000 at today’s low mortgage rates.  Not cheap.

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May 2010 S&P Case-Shiller Index Ticks Up in Miami and New York

posted on August 18th, 2010 filed under: Real Estate Market Data

The Standard & Poor’s Case-Shiller Home Price Index registered its first monthly advance in over half a year for the Miami metro area that includes Coral Gables.  After drifting lower for a while, the index for the three-month period ending May 2010 ticked up, recovering a few months of the gradual slide in real estate prices.

These data are not seasonally adjusted and probably reflect some of the usual spring-summer strength, but the seasonally adjusted version of the S&P Case-Shiller Home Price Index also ticked up.

S&P Case-Shiller Home Price Index -- Miami -- May 2010 (NSA)Source: Standard & Poor’s

The S&P Case- Shiller Home Price Index is also segmented into price tiers.  At first blush, the high-tier segment would seem to be much more relevant to real estate values in Coral Gables and other luxury-home submarkets in Miami.  But the threshold for the high tier in Miami, as the S&P Case-Shiller Index defines it, is only $257,319.  As a result, the overall pattern is pretty much the same, with the scale of the boom and bust somewhat more attenuated — perhaps because mortgage fraud and the Wall Street mortgage-securitization scheme had the biggest impact at the lower end where the only way to buy is to borrow.

S&P Case-Shiller Home Price Index -- Miami -- High Tier -- May 2010Source: Standard & Poor’s

The same patterns are on display in the S&P Case-Shiller Home Price Index for the New York metro area.

S&P Case-Shiller Home Price Index -- New York -- May 2010 (NSA)Source: Standard & Poor’s

Again, the high-tier index takes the same general shape, with the amplitude of the boom and bust a bit more moderate than for the overall index.  The high tier in New York is defined as above $433,673.

S&P Case-Shiller Home Price Index -- New York -- High Tier -- May 2010Source: Standard & Poor’s

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Friday Fountain Photo

posted on August 13th, 2010 filed under: Fountains

Fountain at Biltmore Hotel and Golf Course in Coral Gables.

Coral Gables Real Estate Photos -- Biltmore Golf Course Fountain -- 1

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Homebuilder Sentiment Falls Further

posted on July 25th, 2010 filed under: Real Estate Market Data

This month’s reading for the Housing Market Index maintained by the National Association of Home Builders and Wells Fargo: a tantalizingly weak 14.

Last month’s post on homebuilder sentiment reserved judgment on whether the big drop in sentiment from 22 in May to 17 in June suggested another big leg down for housing.  That decline was big, but could have been a temporary, knee-jerk reaction to the end of the $8,000 government handout program.  When times got really bad in fall 2008 to spring 2009, the index collapsed from 14 to 9 and bounced around in the single digits.

The HMI has now broken below 15, but only barely.  Meanwhile, homebuilder stocks have rebounded with the broader stock market.

HGX Homebuilder Stocks Index -- Chart -- July 2008 to July 2010

Source:  Yahoo! Finance

If real estate sales stabilize and the stock market holds up, the sentiment index should avoid another meltdown.

If you’re in the market for a home in Miami or Coral Gables, the HMI may not be directly relevant.  So far, real estate sales in Miami and Coral Gables have bucked the national trend and held up well despite the expiration of the $8,000 tax credit.  But consider it a canary in the coal mine.  If it breaks down further from here, the housing sector and the broader economy might be undergoing another leg down.  And Miami and Coral Gables are not likely to gain solid footing as long as the rest of the nation is on its heels.

Update 07/26/10:

Today’s new home sales report for the month of June shows a rebound from May’s record-low plunge.  The number is still horrible — about the second-lowest on record — but at the higher end of economists’ estimates.  The last three months:

April  422,000

May  267,000

June 330,000

Note : Data for new home sales actually measure contract signings, not closings.

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Friday Fountain Photo

posted on July 16th, 2010 filed under: Fountains

Wall fountain in courtyard of Biltmore Hotel in Coral Gables.

Coral Gables Real Estate Photos -- Biltmore Courtyard -- Wall Fountain -- 2

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Housing and Economy Weaken Together (Again), Threatening Real Estate Values Miami and Coral Gables

posted on July 16th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Neither a borrower nor a lender be;

For loan oft loses both itself and friend

– Shakespeare, Hamlet, Act I, Scene III

Evidence has mounted in recent months of a second leg down in housing and a possible double-dip recession in the broader economy.

The problem, ultimately, is that there is really no way out for a people who have gorged themselves on debt.  Once you’ve reached the point where you can no longer spend today another dollar that you planned to get tomorrow, it takes a long time to wring out all the excess borrowing.

[youtube]http://www.youtube.com/watch?v=NJ6xBaZ92uA[/youtube]

Debt is like hydraulic power.  Banks and other lenders take one dollar and lend it 9 times over, or in the case of some failed Wall Street institutions, 30 times over.  Government agencies (Fannie Mae, Freddie Mac) and yield-hungry investors who take the loans off the institutions’ books absorb the flow of debt and thus free up the lenders to create more.  Eventually, a peak is reached as the most speculative drop of borrowed money is pushed through the system.  As borrowing begins to recede, asset values fall, and borrowers, lenders and investors vanish.

Real estate can make you rich.  There is nothing more beautiful than paying 5 times your income for a house with almost no money down, and seeing its value go up 10% a year.  That’s like getting a 50% raise — with 10% annual compounding on top of it.

But real estate can also make you poor.  There is nothing more destructive of your wealth than buying a depreciating asset with borrowed money.

So where are we in this cycle?  Previous posts have explained that real estate prices usually fall for about 4 years from the time they really begin declining to the time they reach an ultimate low.  In Miami and Coral Gables, real estate prices did not begin declining until about the beginning of 2007, which suggested that the enthusiasm of the past year was premature.

And this is not a typical downturn.  Real estate was far more overvalued and overbuilt than in typical cycles.  In the broader economy, we are arguably in a depression masked by extreme government intervention.

The government and the financial-realty complex turned a firehose of money on the decline in real estate values, and the most we can say is that prices stopped collapsing.  There is less pressure in that firehose now, and not only have prices failed to rise, they have begun to weaken again.

Risk remains.

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Recent Sale: 2525 Indian Mound Trail in Coral Gables — $1.72 Million ($162 Per Square Foot)

posted on July 11th, 2010 filed under: Properties in Focus

The sale of 2525 Indian Mound Trail, near the Biltmore Hotel in Coral Gables, was recorded recently at a price of $1,720,000.  The house is 10,646 square feet, which means the buyer paid just under $162 per square foot for a luxury home in Coral Gables.  Arguably, the interior spaces were more about size than style, but the price still brings to mind the uber-annoying Staples commercial (Wow, That’s  a Low Price!).  Doesn’t appear to have been a fire sale, either.  The house just sat on the market and was gradually reduced until a buyer was found.

2525 Indian Mound Tr.

2525 Indian Mound Tr.

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