BLBG: U.S. Housing Recovery Delayed to 2010 as Market Wanes (Update1)
By Kathleen M. Howley and John Gittelsohn
Nov. 20 (Bloomberg) -- A recovery in U.S. housing will have to wait at least until next year.
The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.
“I don’t think the housing crisis is over,” Mark Zandi, chief economist with Moody’s Economy.com, said in a telephone interview. “I think we’re going to see another leg down.”
New home sales may begin to pick up by the start of the so-called spring selling season, said Toll Brothers Inc., the largest U.S. luxury homebuilder. Existing house sales may take longer. Residential construction and property sales led the way out of the previous seven recessions going back to 1960, said David Berson, chief economist of PMI Group, the mortgage insurer in Walnut Creek, California.
Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association.
An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April’s all-time bottom.
‘Challenging’ Conditions
“Market conditions in the homebuilding industry are still challenging, characterized by rising foreclosures, high inventory levels of available homes, increasing unemployment, tight credit for homebuyers and weak consumer confidence,” said Donald R. Horton, chairman of D.R. Horton Inc., the nation’s second-largest homebuilder. The company today reported a fourth-quarter loss of $231.9 million on $1 billion in sales, missing analysts’ estimates.
The $8,000 federal tax credit for first-time buyers, extended by President Barack Obama on Nov. 6, drove existing home sales to a two-year high in September. At the same time, a 26-year high in unemployment is keeping many buyers out of the market and pushing existing owners into foreclosure.
U.S. companies have shed 7.3 million jobs since December 2007, the biggest contraction since the Great Depression, and the unemployment rate jumped to 10.2 percent in October, the highest since 1983, according to the Bureau of Labor Statistics.
The jobless rate probably will peak at 10.4 percent in 2010’s first quarter, even as the U.S. economy continues an expansion that began in the third quarter, said Douglas Duncan, chief economist of Fannie Mae, the largest mortgage financier.
Loan Delinquencies
“You don’t pay a mortgage with economic output -- you pay a mortgage with a paycheck,” Jay Brinkmann, MBA’s chief economist, said yesterday.
The share of all types of home loans with one or more payments overdue climbed to a record seasonally adjusted 9.64 percent in the third quarter, the Washington-based trade group said in a report yesterday.
The Standard & Poor’s Supercomposite Homebuilding Index of 12 companies tumbled almost 5 percent in the six days through yesterday as negative housing data crushed hopes of a recovery.
There are signs that parts of the U.S. are rebounding. California, among the states where the housing bust started, is one of the few areas that’s beginning to recover.
October home prices in Orange County, San Diego and the San Francisco Bay Area increased from a year earlier, MDA DataQuick, a San Diego property information service, said this week. The number of sales also increased in the Bay Area and Southern California.
Tenuous Stabilization
“We have to be aware that the stabilization that we’ve seen so far is tenuous at best,” Lennar Corp. Chief Executive Stuart A. Miller said Nov. 17 at a conference in New York sponsored by UBS AG.
Homebuilders and investors will get a better gauge of whether housing demand is stabilizing in 2010’s first quarter, said Robert Toll, chairman and chief executive officer of Toll Brothers, the largest builder of luxury houses.
The spring selling season for homebuilders typically begins in February, earlier than the resale market because families with children want to be able to move into a home before September’s start of school. It can take up to six months to build a home, and up to 9 months to build the larger houses sold by Toll Brothers.
Spring Recovery
“My prediction is we’ll probably recover on a seasonal basis,” Toll said yesterday at a conference in New York sponsored by Citigroup Inc. “It’s generally accepted that the homebuilding industry is off the mat and on the road to recovery.”
The U.S. median existing home price tumbled 28 percent over three years to $164,800 in January, the lowest in more than seven years, according to the National Association of Realtors. A month later, Congress passed the American Recovery and Reinvestment Act of 2009 giving a tax credit to first-time buyers.
Existing home prices probably will fall 12 percent this year to a median of $173,800, while the new-home median likely will tumble 8.7 percent to $212,000, according to a forecast on Fannie Mae’s Web site. Combined sales of new and existing properties probably will drop 0.7 percent to 5.36 million, even with the federal tax credit, after plunging 16 percent last year.
“The first-time homebuyer tax credit juiced up sales,” said Moody’s Zandi. “The stimulus was helpful. It augurs, at the very least, that policy makers can’t pull life support from housing.”
Bouncing at Bottom
Josh Levin, a housing analyst at Citigroup Global Markets Inc. in New York, said he expects sales to continue to be slow until January or early February, followed by a surge as buyers try to beat the April 30 expiration of the tax credit.
“The bouncing along the bottom is distorted by government policies,” he said in an interview yesterday.
Foreclosures will also have limited impact on driving down real estate prices as long as banks are slow to put properties on the market and the government encourages loan modification programs, he said.
“It’s clear the government and banks don’t want to flood the market with foreclosed homes and it’s clear it’s going to be dragged out,” he said.
To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.
