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What’s Really Happening with the U.S. Real Estate Market?

September 20, 2010 by MSI

Over the past 18 months home sales have been fairly stable in the U.S., despite ongoing unemployment challenges, due in large part to the Homebuyer Credit, which was a key element of the Stimulus package. As the Homebuyer Credit has expired, what is going on now in real estate?

According to a joint release issued by the U.S. Census Bureau and the Department of Housing and Urban Development, July sales of new single-family homes dropped 12.4% from the previous month and 32.4% from July 2009 to a seasonally adjusted rate of 276,000, the lowest level in nearly 50 years. This data was met equally depressing news from the National Association of Realtors (NAR) indicating that existing-home sales dropped 27.2% from June and 25.5% from July 2009 to a seasonally adjusted rate of 3.83 million units, the lowest level since they began tracking the data in 1999. While NAR’s numbers showed a rise in pending home sales in August, NAR chief economist Lawrence Yun cautioned, “Home sales will remain soft in the months ahead, but improved affordability conditions should help with the recovery.”

So, what’s really going on? Well, no one has a proverbial crystal ball to predict the future, but here are a few facts.

• The unemployment rate is currently at 9.6% and unemployment claims rose to the highest level in 9 months in July, with another 54,000 jobs shed in August. The Bureau of Labor Statistics reports that there are 14.6 million individuals unemployed in the U.S. currently, with another 8.6 million working part-time because they cannot find full-time work.
• Due to drastic cost cutting and cost-containment measures over the past 2 years, corporations are sitting on a record amount of cash – over $1 trillion, but with economic instability still looming, companies are not prepared to increase head count and add jobs or raise income for existing employees.
• Near record low rates drove mortgage applications up in August, but it was primarily due to refinance applications and not purchases.
• Even though foreclosure starts were down nearly 10% in July (source: Mortgage Banker's Association), according to LPS, through the end of July, starts had risen 24.5% month over month, reaching the 4th highest level ever recorded by the company.
• There is a total of $13.2 trillion in mortgage debt in the U.S. and LPS reports that 13% of all mortgages are non-current (inclusive of delinquencies and foreclosures) indicating that more foreclosures are on the way.

Where does this leave us? Sadly, the worst may still lie ahead. Though home prices only fell 6% in July compared to the drastic drops in sales for both new and existing-homes, prices lag behind sales by several months so it would not be surprising to see prices continue to drop through the remainder of 2010 and possibly into 2011. And, if unemployment continues in the mid- 9% levels, more people are likely to head towards delinquency and foreclosure, driving more inventory and further reductions in price and overall instability in the market.

Will the government bring back the Stimulus to mitigate the downturn? It’s not been discussed at length in the public, but in a CNN interview, HUD Secretary Shaun Donovan commented, ‘We are watching it very carefully.”

Time will tell and, until then, we just watch and wait…