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Year End Housing Reports Mostly Negative
January 5th, 2011 10:40 AM


Year End Housing Reports Mostly Negative

A slew of housing reports coming out at the end of the year mostly provided cause for concern about the real estate market in 2011.  The most recent Standard & Poor’s/Case-Shiller Home Price Index released on December 28th showed declines in all 20 of the metropolitan areas included in the index for October from the previous month, with an overall monthly decline of more than 1%. David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s was quoted as saying that:
“The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks. There is no good news in October’s report. Home prices across the country continue to fall.”

A link to the entire S & P/Case-Shiller press release is found here: US Home Prices Weaken Further as Six Cities Make New Lows According to the S&P / Case-Shiller Home Price Index (Link opens a .PDF File)

On December 29th, a report by Amy Lee in the Huffington Post discussed this housing data and quoted Robert J. Shiller, co-creator of the Index, as saying that: "If home prices continue on this pace down, I think the economy has serious reasons to worry." Links to Ms. Lee’s report and to a Wall Street Journal video interview with Mr. Shiller are found here: As Home Prices Drop, "Serious Reasons to Worry" About Economy

On December 23rd, the Commerce Department released data indicating that the number of new home sales in November totaled just 21,000, the lowest monthly figure on record according to the department’s data as reported in the New York Times the same day. The Times article also quoted Joshua Shapiro, chief U.S. economist for MFR, Inc., a global economic consulting firm as saying that: “Recent results are horrendous, and most indicators of the housing market point to continued weak conditions in spite of very low mortgage rates."  Patrick Newport, U.S. economist for HIS Global Insight commented in the article that the problem largely related to tight credit due to smaller banks problems with nonperforming loans and quoted him as saying that: “Builders are saying they cannot finance viable projects,” Mr. Newport said. “From a builder’s point of view, this is the worst month that they have ever had. They have never sold so few homes.” A link to the New York Times article is found here: Home Sales Struggled Again in November.

On December 22nd, discussed the upcoming impact of the “shadow inventory” on housing in a video titled “A Haunted Housing Market,” a link to which is found here: A Haunted Housing Market?

Writing in the Wall Street Journal, Peter D. Schiff, president of Euro Pacific Capital, painted an extremely bleak picture of housing’s future.  Analyzing the Case-Shiller Index and long term trends, he projected that “…the index would need to decline an additional 20.3% from current levels just to get back to the trend line."

Also reacting to the Case-Shiller report, Ash Bennington, in an article on December 29th on, quoted Nouriel Roubini (“Dr. Doom”) as saying that “It’s pretty clear the housing market has already double dipped…12 million households are already in negative equity and 8 million more have an LTV between 95 and 100%. Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home—i.e. jingle mail."

Here is one final link to an interesting report on the “scary” housing picture by Dan Dorfman in the Huffington Post on December 20th: Housing Chill Could Trash 2011

One result of all of this is a dramatic drop in mortgage applications. On December 22nd, another Huffington Post article reported that the Mortgage Banker’s Association found that mortgage applications had dropped to their lowest level in almost one year.  A link to this article is found here: Home Loan Demand Drops to Lowest Level in One Year

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Improvement In The Commercial Real Estate Market?

On December 23rd, Agnes T. Crane, writing in Reuters, discussed how some big city markets such as New York, Los Angeles and Washington have “…primed the pump for a broader market recovery."  Citing instances such as Google’s reported purchase of a New York City office building for $1.8 billion, she notes that such deals have “…breathed life back into commercial real estate." Ms. Crane notes that while Moody’s Investor Service are off approximately 42% nationally since the market peak several years ago, “…valuations rose in October for the second consecutive month”.  The article concludes by saying that overall economic conditions and employment will dictate commercial demand and that “Especially in the hardest-hit local markets, that means at best sluggish improvement in the near term.  Still, even a shallow recovery in 2011 is a far better outcome than the implosion once feared."  A link to this article at is found here: Breakingviews - Commercial Real Estate

On December 24th,the New York Times reported on the difference in results this past year between those with investments in commercial real estate (where recent reports indicate that delinquent loans had risen to approximately 9%) with the far superior results for those who invested in commercial-mortgage-backed securities, where prices have risen substantially.  The author, Floyd Norris, noted that: “Those facts are not as contradictory as they seem.  Prices have leaped not because things are great in the world of commercial-mortgage-backed securities but because they are not nearly as bad as the panic-level prices of mid-2009 had indicated."

Mr. Norris discussed the differences between commercial-mortgage-backed securities where one property loan in a securitization can have a huge impact on the investment (i.e. a shopping center losing a major tenant that can’t be replaced) while the damage with residential-mortgage-backed securities arose from the waves of foreclosures as properties lost value.

The Wall Street Journal reported on December 29th that real estate investment trusts (REITS) were set to close the year substantially higher than the broader stock market with Dow Jones All REIT Index up 27% as of the previous day’s close. Hotel REITs led the group followed by regional mall REITs.

Newsday reported on December 30th that the FDIC listed 157 bank failures in 2010, up from 140 in 2009 and noted that this was the largest number of failed banks in any year since 1992 at the time of the savings and loan crisis.  The article noted that the banks involved this year were smaller, on average, than those last year and stated that many of the failed institutions were “…community banks brought down by commercial loans."

The Wall Street Journal did note on December 30th that some big U.S. banks were beginning to increase commercial and industrial lending citing an estimate by Moody’s Analytics that said lending grew by 0.2% in the fourth quarter from the third quarter, the first such increase after steadily declining for two years.

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Posted by Roch Lemieux, III on January 5th, 2011 10:40 AMPost a Comment



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