A sign of hope? Why housing hasn't hit bottom

If you,  like I, were listening to the radio with one ear this morning, you might have heard a story that started off something like this: "A sign of hope today for the troubled housing market..."

Yes, there is a sign of hope. Housing starts were better than expected in April. There will be other signs of hope as the housing market begins to thaw out from near-freeze conditions. But no, these signs don't mean the housing market is anywhere near reaching a bottom.

First the news, from Reuters via L.A. Times: "Construction starts on new U.S. homes rose by a surprisingly strong 8.2% in April and applications for new building permits turned up for the first time in five months, the Commerce Department said today in a report showing the hard-hit housing sector still had some spring vigor."

Now, why that's not very significant: "Single-family starts continue to show weakness and [are] coming off a 17-year low," said George Adell, a fixed-income strategist with Commerce Capital Markets in Jupiter, Fla. "We can't say we've hit a bottom, but it's better than what we've seen."

There are roughly 2  million vacant homes for sale in the United States right now, prices of homes are falling, and credit is scarce for buyers with less than good credit. It is not a good time to be building houses. Sales of foreclosed houses now make up roughly a third of the housing market in California, and that percentage is likely to rise in the short term. Price declines in bubble markets (hint: we live in one) have been accelerating this spring, causing banks to re-calculate the damage to borrowers' balance sheets. Bank of America said this week those balance sheets are looking even worse now, according to a wire story:  "Bank of America Corp. warned Tuesday that its losses on home-equity loans would be worse than it predicted just three weeks ago, adding to evidence that more consumers are falling behind on debts."   When the biggest consumer bank in America says things are worse now than they were three weeks ago, that is not a sign of a bottom.

But maybe I'm wrong. If you think so, go ahead and school me. E-mail story tips to peter.viles@latimes.com.
Photo Credit: Associated Press

Comments

[William Jones]

Peter-

I heard that the "construction starts" were distorted by multi-family (as opposed to single family) housing. Is this correct?

[Keahi Pelayo]

Sounds like a great time for renters to buy as long as they are going to be living in the home long term.
Aloha,
Keahi

[IToldu2CashOut]

The NYtimes article on this subject said the housing starts were for rental buildings.

[E]

@Keahi...

no it doesn't...sounds like a good time to wait to see what happens with the Alt-A and Prime ARM resets. I'd be willing to bet that there were quite a few people with great incomes and even better FICO scores that purchased more than they can afford.

Why should it matter if we wait for a while anyways? All you RE professionals saved your bountiful commissions (from the last 5 years) for a rainy day...didn't you?

[MyLessThanPrimeBeef]

I don't mean to be mean, but I am kind of old-fashioned and I don't believe it's ethical to book more passengsers while your ship is sinking.

Taking on more weight does not help at all.

So I see this as bad news - more new starts and building permits. Instead, let's see some sales figures.

[shockg]

"There are roughly 2 million vacant homes for sale in the United States right now"

Real estate is local. National stats which typically lag by 3-6 months are meaningless.

"Sales of foreclosed houses now make up roughly a third of the housing market in California, and that percentage is likely to rise in the short term."

Yes if by "california" you mean Stockton, Palmdale, IE, etc.

"Price declines in bubble markets (hint: we live in one) have been accelerating this spring."

The bad areas yes(Palmcaster, IE, Compton, ETC). The better areas are and will fair much better.

[perks]

Of course housing starts are up! Far better to build homes and sell at a loss now than to hold on to the property and sell at an even greater loss later. Builders simply need all those empty lots off their books.

[Uncle Billy Climbs Mont Pelerin]

Yah, Yah, for clarification: "Starts on multiple units buildings increase but single-family home starts fell."

Where are they building all the multifamily?

[LA]

Shockg, I live in the Frederick Olmsted District in historic "Old Torrance," which is not the best part of Torrance, but is a very desirable neighborhood, nonetheless.

Last year, a plain-Jane, 3 br house 1/2 block from me sold for $800,000. Two months ago, the house next door to me - a comparable property - sold for $600,000. It was a probate sale originally listed at $719,000 and it got so little traffic that I'm surprised it sold so high. These two homes in 2001 would have sold for around $300,000., and in the mid-200k's in the late 1990s.

I'm watching another listing in Old Torrance that belonged to a friend. It was listed almost a year ago at $1.3 million and has slowly fallen to $800,000. This house may become an REO this year. I won't be surprised if it can be had for around $450,000 in the next couple of years - its approx. value in 2001.

It's far too soon to know what will happen in the "better areas," but it ain't gonna be good.

[Joseph]

Yup, just wait until the Alt-A mortgage resets hit. You ain't seen nuthin' yet:

http://www.youtube.com/watch?v=pmeBSWI9sF8

And I have to say that while I love lefty's comments, it's much more fun to read "shockg", since I think "lefty" is done tongue-in-cheek. "Shockg", on the other hand, is sincere in his delusion. Keep posting, dude--it's great entertainment!

[tag heuer]

desirable area of Torrance ? YA RIGHT!

[Pasadena]

"The better areas are and will fair much better."

If "better" means "stall out", yes. I'm closely watching the best areas of Pasadena (ie south of the 210) and these houses are NOT SELLING. Sellers are flipping agents and relisting but they are NOT MOVING. One house that was purchased for $1.6MM 2 years ago was listed at $1.3 and then dropped to $1.05MM....6 months later.. I have seen that house go "under contract" 3 times. Why??? Because people were willing to buy these houses at these prices when it was the banks money (i.e. zero down), but now the few remaining qualified buyers (i.e., those with 20% down) are not willing to buy a house that is mediocre at best (in size and quality) for what are still listed at premium prices. Drop that house to $890K and it might sell to a qualified buyer.

[Patek Philippe]

Tag Heuer? LOL

[Ace]

I love that the Toll Brothers sign in the photo says 'last chance'

Last chance for what? To buy at a high price before they slash the prices at the end of the summer?

[Susan]

I've been keeping track of listing and sale info since 2006 for Redondo Beach, considered a "desirable" area. The short sales I find consistently show that homes are currently selling at losses from 2005 (and sometimes, 2004) sale price levels. The "desirable" areas are not immune to the problems the markets are facing elsewhere.

[Joseph... the Real Estate Guy]

This is spreading to all areas in California, except maybe where the Super-Rich live!

One million or higher prices!

Option-arms are ready to bust!

[John T Watts]

Are the people who lived in the 2 million vacant houses living outdoors now?

[Cal]

The Toll Brothers condos at Topanga and the 118 (great view, extremely loud location for anyone with a view) were "Starting from the high 600's", specifically 689k and everything was an add on. Now they are starting in the 500's and a lot more is thrown in.

Still a horrible deal and a reflection that Toll has been extremely slow relative to other builders in reacting to the slowdown. I think they will be selling raw land into a much more distressed market because they thought the high end is immune.

On a new home builder related note, Centex sold their Riverpark complex in Oxnard for 30 cents on the dollar to book value (which I am sure was already greatly reduced). They get a tax return which makes them only realize a 15% loss instead of 70%. The new owners can cut prices much more aggressively and still make a good profit.