New Home Sales Fall- some are surprised

New-home sales in the U.S. fell unexpectedly in July for the second month as the housing recovery makes only fitful progress.
Sales declined 2.4 percent to a 412,000 annualized pace, the fewest since March and weaker than the lowest estimate of economists surveyed by Bloomberg, after a 422,000 rate in June, the Commerce Department reported today in Washington.
Housing has advanced in fits and starts this year, buffeted by tight credit and slow wage growth. A shortage of skilled labor and supply-chain bottlenecks also have hindered construction even as population growth boosts demand for shelter. Bigger gains in employment and wages would stoke a more-rapid recovery.
“It’s a little bit disappointing,” said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years, according to data compiled by Bloomberg. “The new-home sales data have no traction whatsoever and doesn’t seem to be gaining at all.”
The median forecast of 70 economists surveyed by Bloomberg called for the pace to accelerate to 430,000. Estimates ranged from 414,000 to 470,000. June’s pace was revised up from a previously reported 406,000.
Stocks held gains after the figures as European equities climbed on prospects for increased stimulus and Burger King Worldwide Inc. rallied on merger activity. The Standard & Poor’s 500 Index advanced 0.5 percent to 1,999.14 at 10:16 a.m. in New York.

Selling Prices

The median sales price of a new house climbed 2.9 percent from July 2013 to $269,800, today’s Commerce Department report showed.
Purchases dropped in three four U.S. regions, led by a 30.8 percent slump in the Northeast. The West declined 15.2 percent and the Midwest fell 8.8 percent. Sales climbed 8.1 percent in the South.
The supply of homes at the current sales rate rose to 6 months, the highest since October 2011, from 5.6 months in June. There were 205,000 new houses on the market at the end of July, the most in almost four years.
New-home sales, which last year accounted for about 5 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Existing Homes

Existing-home sales picked up last month as low borrowing costs and an increase in inventory drew buyers. The annual pace of purchases climbed to 5.15 million in July, the best showing since September, according to the National Association of Realtors. Residential construction also rebounded, with starts climbing 15.7 percent last month to a 1.09 million annualized rate, the Commerce Department reported last week.
Builders and their suppliers see room for growth as the job market improves. As foreclosures and other distressed property sales become a smaller share of the market, housing growth will accelerate, said Robert A. Niblock, chairman and chief executive officer of home-improvement chain Lowe’s Cos., based in Mooresville, North Carolina.
“Signals from the housing market appear mixed,” Niblock said on an Aug. 20 earnings call. “We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth.”

Truth is, those recent housing numbers aren't so shiny-Housing starts? More like housing stops, amirite?

The mainstream financial media have something to sell you.
It’s optimism. Or optimistic spin.
It doesn’t matter whether they are servicing, in the "old profession" sense of the word, their Wall Street sugar daddies and insider connections, or working as palace guards for Team Red and/or Team Blue, whichever they favor.
In some cases it’s just overworked writers promoted Peter Principle-style to covering subjects they don’t understand. The rest are market cheerleaders who believe in management of perspective economics – if people hear enough good news about the economy, they’ll spend and invest more.
Today’s housing starts and permits report from the Department of Housing and Urban Development is a prime example.
Take a quick look at the bulk of the headlines. Note the words soar, surge, jump and so on.
And here are the plain facts. After plunging in June, housing starts and housing permits recovered in July, printing at 1,093,000 and 1,052,000, respectively.
And yes, this is a 15.7% gain in starts and permits.
The bad news is that almost all of those gains from June to July in starts and permits are in multifamily rental housing.
That’s not the sign of a housing recovery. That’s the sign of a shift from an ownership society to a rental society.
In permits, almost all of the increase was due to multi-family unit construction, which soared by 73,000 to 382,000, a 24% increase, while single-family residential permits were up by just 6,000, or less than 1%.
And technically, apartments can be homes, but come on. That’s not what they mean when they say things like:

Construction on new U.S. homes jumped 15.7% in July to the highest level in eight months and starts were revised up sharply for June, indicating a pickup in home building after an early-year lull.

Emphasis mine.
And it’s not just the mainstream financial press. Check the wording in this report from Capital Economics.

“The sharp rise in housing starts in July is an encouraging sign that the recovery in construction activity is getting back on track. Booming homebuilder confidence points to further gains to come.”

If you’re feeling déjà vu, there’s a reason. Words to this effect are used every time there’s an uptick in housing starts, pending sales, and existing sales, while every downturn is blamed on everything from the weather to the weather.
It’s never, ever blamed on the tepid economy and the part-time job market that’s the new norm.
A few out there get it.
Brent Nyitray, director of capital markets for iServe Residential Lending, notes that, “Can't complain about the number, which was the highest in eight months. Still, ‘normalcy’ is around 1.5 million units per year, which goes to show how depressed housing still is. We probably will not hit historical numbers until the first time homebuyer returns.”
And that won’t happen until jobs return, and the last couple of monthly jobs reports heralded in the media have been heavy on the part time and low income jobs, and light on full time and middle class.
Retail, wait staff and home health aides accounted for 41% of the positions created over the past couple of years, according to the latest figures from the National Employment Law Project, a left-leaning advocacy group who may be wrong on the minimum wage issue but they’re right that you can’t have a strong economy without strong job growth. (Their solutions are the stuff of college dorm room discussions, but there are better solutions to better job creation than the weak sauce we’ve seen from this administration and Congress.)
Meanwhile, medium-wage manufacturing jobs accounted for just 26% of the new jobs, while white-collar industries generated 33% of the new jobs.
As CNBC notes, since the recession ended, lower-wage jobs have grown by 2.3 million while medium- and higher-wage jobs actually contracted by 1.2 million. This is in line with the ground-losing 2% wage growth the job market is seeing.
Now you see why the big gains in housing starts and permits are pretty much concentrated in apartment construction, not home building.
And you see why housing won’t get its footing back until private enterprise and the economy as a whole is unshackled and unhobbled.

Whle Greater Optimism from builders is wonderful, what will greater inventory do to values? Also, what about the foreclosure inventory?

Housing starts surged in July to the highest level in eight months, underscoring the recent pickup in builder optimism as the U.S. residential real-estate market gains some traction.
Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington. The level exceeded the highest estimate in a Bloomberg survey of economists, whose median projection called for 965,000 starts.
A strengthening job market and cheaper borrowing costs are helping revive residential real-estate after a lull in construction at the start of the year. At the same time, the industry’s recovery has been challenged by slow wage growth and tight credit, which have put homeownership out of reach for some Americans.
“Recent news on the housing front has been relatively encouraging,” Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said in a research note. “‘With affordability remaining high, mortgage rates still low, and labor market activity accelerating, we expect the housing market trajectory to continue gradually improving in the coming months.”

Beginning home construction climbed 15.7 percent to a 1.09million annualized rate following June’s 945,000 pace, which wasstronger than previously reported, the Commerce Departmentreported today in Washington. The level exceeded the highestPhotographer: Luke Sharrett/Bloomberg Close

Beginning home construction climbed 15.7 percent to a 1.09million annualized rate... Read More

Close

Open

Beginning home construction climbed 15.7 percent to a 1.09million annualized rate following June’s 945,000 pace, which wasstronger than previously reported, the Commerce Departmentreported today in Washington. The level exceeded the highestPhotographer: Luke Sharrett/Bloomberg

Permits for future projects advanced 8.1 percent to a 1.05 million pace. The gain reflected the fastest rate of building applications for single-family dwellings since November.
Estimates for annualized starts ranged from 898,000 to 1.03 million after a previously reported 893,000 in June, according to the Bloomberg survey of 75 economists. It was the biggest positive surprise for starts since April 2013. Building permits were projected to advance to a 1 million rate.

Consumer Prices

Another report today showed the cost of living in the U.S. eased in July as energy prices declined. The consumer-price index increased 0.1 percent last month, the smallest gain since February, according to the Labor Department. Costs excluding fuels and food also rose 0.1 percent in July.
Stocks rose after the reports, with the Standard & Poor’s 500 Index advancing 0.2 percent to 1,975.4 at 9:45 a.m. in New York. Home Depot Inc. gained 4.2 percent after earnings topped analysts’ estimates and the company raised its forecast.
Starts of single-family properties rose 8.3 percent to a 656,000 rate in July, the fastest this year, the Commerce Department said. Construction of multifamily projects such as condominiums and apartments rose 28.9 percent to an annual rate of 437,000.

Photographer: Luke Sharrett/Bloomberg

Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington. Close

Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate... Read More

Close

Open

Photographer: Luke Sharrett/Bloomberg Beginning home construction climbed 15.7 percent to a 1.09 million annualized rate following June’s 945,000 pace, which was stronger than previously reported, the Commerce Department said today in Washington.

Northeast Jump

Three of four regions showed an increase in groundbreaking last month, led by a 44 percent jump in the Northeast to the highest level since July 2008. Starts rebounded 29 percent in the South and climbed 18.6 percent in the West.
Today’s figures corroborate a report yesterday showing builder confidence rose in August to the highest level in seven months. The National Association of Home Builders/Wells Fargo said its sentiment measure climbed to 55 from 53 in July.
Weather dealt a setback to builders at the beginning of the year as snow blanketed construction sites in parts of the country and bitter cold kept some would-be buyers at home. Homebuilding bounced back in the second quarter, climbing at a 7.5 percent annualized rate in the second quarter after a 5.3 percent slump in the first three months of the year, data from the Commerce Department showed on July 30.
More hiring and cheap borrowing costs are helping some Americans take the plunge. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures.

Interest Rates

Borrowing costs have declined this year. The average 30-year, fixed-rate mortgage was 4.12 percent in the week ended Aug. 14, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.
While the market recovers, demand is outpacing construction. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.
New orders at the Ryland Group Inc. climbed 1.7 percent, to 2,228 homes, in the three months ended June 30. It was the best quarter in seven years for the Westlake Village, California-based company and President and Chief Executive Officer Larry Nicholson said he is optimistic about the outlook.
“We remain confident about the future of housing,” Nicholson said on a July 31 earnings call. “We see the markets continue to move forward. We have good traffic. We’re making sales. We’re making margin. We’re pretty upbeat for what we see for the rest of the year.”

Some pretty smart people worried about stock bubble- what do you think will happen when people feel less rich?

Some of the brightest minds in finance are sounding the alarm about a stock market bubble.

They aren't warning of an imminent crash, but their comments should remind investors that the current bull market -- over five years long -- can't last forever.

1. Nobel Prize-winning economist Robert Shiller: Valuations at "worrisome" levels.
"The United States stock market looks very expensive right now," Robert Shiller wrote in a recent column for The New York Times.
Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.
Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s. The Nasdaq still hasn't fully recovered from that meltdown.
The Yale professor sounds bewildered by the lofty valuations for the stock market, which has nearly tripled since the March 2009 bear market lows.
Related: Get ready for lousy stock returns
But none of this means it's time to sell everything. Shiller notes that his gauge is a "very imprecise timing indicator" and said the market could "remain at these valuations for years."
2. Hedge fund king Carl Icahn believes there's a bubble.
"We can no longer simply depend on the Federal Reserve to keep filling the bunch bowl," the hedge fund billionaire wrote on Tumblr last week, referring to the numerous measures the Fed has taken to stimulate the U.S. economy.
Icahn described a "dangerous financial situation" that includes challenges tied to monetary policy, unemployment and income inequality.
He also said recent comments from Fed chief Janet Yellen at the International Monetary Fund "suggest, and I agree, that we are in an asset bubble."
Related: Beware of social media, biotech stocks
Still, Icahn isn't calling for an imminent crash by any means. He acknowledged a bubble might not burst for "the next one, five, ten or 20 years."
It's also important to recall that Icahn currently owns billions of dollars worth of stocks. During the second quarter he even raised his stake in eBay (EBAY, Tech30) and added a new investment in Gannett (GCI). He still thinks there's value out there.
3. Ex-Treasury secretary Robert Rubin: Low rates could spark another financial crisis.
"The risk of excesses and the consequent instability have increased substantially," Rubin and Harvard professor Martin Feldstein wrote in an Op-Ed in The Wall Street Journal last week.
These financial luminaries (Feldstein served as chief economic adviser to President Ronald Reagan) didn't explicitly say whether a bubble already exists or if the Fed needs to hike rates now to prevent one.
However, they did advise the central bank to consider the possibility that the "excesses" caused by extremely low interest rates could "create financial crises."
Rubin and Feldstein pointed to record high stock prices, "dramatically" lower spreads on low-quality junk bonds and surging volumes of high-risk leveraged loans as alarming signs.
Related: Is it time for Wall Street to issue a correction?
If hedge funds are holding assets that suddenly pop in a bubble, there's a risk of "contagion and snowballing effect" when they all hit the exits at the same time, the duo wrote.
Rubin should know about this threat. He was in charge of Treasury in 1998 when collapsing hedge fund Long-Term Capital Management imperiled the whole system. Ultimately Wall Street was forced to come to the rescue with a $3.6 billion industry-funded bailout.

RealtyTrac: Cash purchases disappearing from home sales-Institutional investors keep cooling down

All-cash sales made up 37.9% of the single-family property sales in the second quarter of 2014, a fall from 42% in the first quarter, which marked a three-year high for cash sales.
But cash sales in the second quarter of 2014 were still above 2013’s second quarter, when 35.7% of all sales were in cash, according to the Q2 2014 U.S. Institutional Investor & Cash Sales Report from RealtyTrac.
While the cash sales decline is moderate, the share of those sales from institutional investors, entities that purchase at least 10 properties in a calendar year, fell in the second quarter to 4.7%, which marks the lowest level since the first quarter of 2012.
“The flurry of purchases by institutional investors and other cash buyers that kicked off two years ago when U.S. home prices hit bottom is finally showing signs of subsiding,” said Daren Blomquist, RealtyTrac vice president, noting that the U.S. median home prices bottomed out in March 2012.
“Over the past 10 quarters cash sales have accounted for 39% of all home sales on average, and institutional investor purchases have accounted for 5.3% of all home sales on average,” Bloomquist added.
“Prior to that, from 2001 to 2011, the average quarterly cash share was 30%, and the average quarterly institutional investor share was 2.6%. This is a classic good news/bad news scenario for the housing market.”
According to RealtyTrac’s report, cash sales account for larger share of very high-end, low-end and distressed sales. The report shows that U.S. cash sales hit a recent peak of 45.8% of all home sales in the first quarter of 2012, when home prices bottomed out, but were down to as low as 34% of all sales in the third quarter of 2013 before jumping to 36.6% in the fourth quarter.
That was on the heels of the rise in interest rates and then the share of cash sales jumped again to 42% of all sales in the first quarter of 2014, when new qualified mortgage rules from the Consumer Financial Protection Bureau took effect.
“The good news is that fewer cash buyers should help loosen up inventory of homes for sale and reduce competitive bidding, giving first time homebuyers and other non-cash buyers more opportunities,” Bloomquist said. “The bad news is that some of those first time homebuyers and other non-cash buyers may already be priced out of the market thanks to the rapid run-up in home prices over the past two years in many areas.”
Cash sales in the second quarter were skewed higher on both ends of the home price spectrum. Cash sales accounted for 67% of purchases of homes selling for $100,000 or less, and cash sales accounted for 45% of purchases of homes selling for more than $2 million.
Cash sales represented a larger share of distressed sales, with 49% of bank-owned sales, 61% of sales of properties in the foreclosure process, and 96% of sales at the foreclosure auction. By comparison, non-distressed home sales were 36% all-cash.
Among metropolitan statistical areas with a population of at least 500,000, those with the top six highest percentages of cash sales were all in Florida: Miami-Fort Lauderdale-Pompano Beach (64.1%), Cape Coral-Fort Myers (62.1%), Sarasota-Bradenton-Venice (61.5%), Tampa-St. Petersburg-Clearwater (54.6%), Lakeland (53.0%), and Orlando-Kissimmee (52.2%). All six metros posted a lower all-cash share of sales than the previous quarter and a year ago.
Other major metro areas with an all-cash share among the top 20 highest nationwide were Las Vegas (50.7%), New York (48.2%), Detroit (47.7%), Kansas City (46.8%), Philadelphia (45.1%), and Cleveland (45.1%).
Among metropolitan statistical areas with a population of at least 500,000, those with the highest share of institutional investor purchases in the second quarter were Atlanta-Sandy Springs-Marietta (15.6%), Las Vegas-Paradise (14.4%), Jacksonville, Fla., (12.5%), Memphis, Tenn. (12%), and Charlotte-Gastonia-Concord (11.3%).
Although Atlanta documented the highest share of institutional investor sales in the second quarter, its 15.6% share was down from a 20.6% share in the first quarter and a 16.5% share in the second quarter of 2013 — following nine consecutive quarters with year-over-year increases in Atlanta’s institutional investor share.
The institutional investor share of home purchases were also down from a year ago in Memphis and Charlotte, but increased from a year ago in Las Vegas and Jacksonville, bucking the national trend.
Other metro areas among the top 10 for institutional investor share with increases from a year ago were Knoxville, Tenn., (10% compared to 6.9% a year ago); Columbus, Ohio (9.2% compared to 6.9% a year ago); and Miami (8.2% compared to 6.7% a year ago).
The report shows that the second quarter share of institutional investor purchases was the lowest since the first quarter of 2012, when they represented 4.6% of all U.S. home sales. The peak in institutional investor share of all sales was 6% in the first quarter of 2013.
In the second quarter institutional investors purchased homes at an average sale price of $147,017, while the average estimated full market value of the homes purchased was $164,553 at the time of the sale.
The majority of purchases made by institutional investors in the second quarter were all-cash (79%) and not in any stage of foreclosure or bank-owned (80%). Of the remaining 20%, 7% were bank-owned, 11% were scheduled for a foreclosure auction, and 2% were in default with no foreclosure auction date set.

Cash sales drop to lowest level since May 2010-Continues 18-month streak of year-over-year decreases

The share of homes purchased in cash continued its decline in May, falling to 34.4% of total home sales, which represents the lowest share of cash sales since May 2010.
May’s cash sales were down from April, when 36.9% of the sales were all-cash, and down from May 2013, when cash sales made up 37.4% of the total home sales, according to a new report from Corelogic (CLGX).
“The share has fallen on a year-over-year basis each month since January 2013,” Corelogic said in the report. “Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25%. The peak occurred in January 2011, when cash transactions made up 46.2% of total home sales.”
Of the 34.4% of total sales that were made in cash, 55.5% were of real estate owned homes.
Re-sales made up 34%, short sales were 32.8% and newly constructed homes were 16.8%.
“While the percentage of REO sales that were cash transactions remained high, REO transactions made up only 8.2% of total sales in May and therefore did not have a large influence on the overall cash sales share,” Corelogic said. “In January 2011, when the cash sales share was at its peak, REO sales made up 24% of total sales.”
The state of Florida, which has long ranked at or near the top of the cash sales rankings, had the largest share of cash sales in May at 53.4% of total sales. New York ranked second at 50.3%, Alabama was third with 48.9%, West Virginia was fourth at 48.3% and South Dakota rounded out the top five with 46.3%.
Of the nation's largest 100 Core Based Statistical Areas measured by population, Nassau County-Suffolk County, New York had the highest share of cash sales at 66.4%, followed by Cape Coral-Fort Myers, Florida (64%), West Palm Beach-Boca Raton-Delray Beach, Florida (62.8%), North Port-Sarasota-Bradenton, Florida (62.7%) and Detroit-Livonia-Dearborn, Michigan (61.1%).

Foreclosures Rise In July

Foreclosures of all types were filed on 109,434 properties in July, an increase of 2% from June, but the figure is still down 16% from one year ago, according to July’s Foreclosure Market Report from RealtyTrac.
July’s report shows that one out of every 1,203 homes in the U.S. had a foreclosure filing during the month of July.
Foreclosure activity recorded includes all default notices, scheduled auctions and bank repossessions.
“July was the 46th consecutive month where U.S. foreclosure activity was down on a year-over-year basis,” said Daren Blomquist, vice president at RealtyTrac. “After nearly four years of falling foreclosures, we are starting to see evidence that foreclosure numbers are normalizing at the national level. The 16% decrease in July was exactly half the annual decrease we saw a year ago in July 2013, when U.S. foreclosure activity was down 32% on a year-over-year basis.”
Per RealtyTrac’s report, a total of 49,624 U.S. properties started the foreclosure process for the first time in July, which represents a 5% increase from June. But the figure is still down 18% from a year ago, which marks the 24th consecutive month with a year-over-year decrease in U.S. foreclosure starts.
Other highlights from the RealtyTrac report:

Despite the annual decrease nationally, foreclosure starts increased from a year ago in 14 states, including Nevada (up 128%), Texas (up 29%), New York (up 17%), Massachusetts (up 12%), and Michigan (up 6%).

A total of 51,595 U.S. properties were scheduled for foreclosure auction in July, up 10% from the previous month but still down 3% from a year ago. Non-judicial foreclosure auctions increased 26% from June to July, but were still down 7% on a year-over-year basis.

Despite the annual decrease nationally, scheduled foreclosure auctions increased from a year ago in 20 states, including New Jersey (up 105%), Oregon (up 50%), Louisiana (up 32%), Utah (up 30%), Connecticut (up 18%), and New York (up 16%).

Lenders repossessed a total of 25,937 U.S. properties via foreclosure in July, down 4% from the previous month and down 30% from a year ago to the lowest level since April 2007.

Bank repossessions were up in seven states, including Maryland (up 77%), California (up 22%), Oregon (up 13%), and New Jersey (up 12%).

Click next to see a breakdown of the cities and states that saw the largest rises and falls in foreclosure activity in July.