Buyers are starting to scoop up increasingly affordable homes

Posted by: Prashant Gopal on January 26, 2009

Sales of existing single-family homes jumped an unexpected 7% in December from November’s seasonally adjusted annual rate, the National Association of Realtors said Jan. 26.

And the inventory of unsold homes at the end of December dropped 11.7 percent to a 9.3 month supply at the current sales pace.

The increase in sales is coming as both home prices and interest rates fall to affordable levels. The national median existing home was $175,000 in December, 15.3% lower than it was in December 2007, the Realtors said.

Bank-owned foreclosures in California, Florida, Nevada, Arizona and other speculative markets are largely behind the sales increases. Prices in those states have been falling fast but unemployment is spiking.

About 60.6% of homes for sale in the Las Vegas metro area during the third quarter of last year were affordable for people earning the area’s median income, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index. A year earlier, just 18% of the homes for sale were affordable.

Expect the affordability to be much greater when the next opportunity index report is released because interest rates have fallen dramatically since November.

Reader Comments

mark

January 26, 2009 01:35 PM

i think it's true. i will be moving into my first house in 2 weeks. the price is expensive still for my taste, but the monthly is not too bad compare to rent, still above of course, but getting closer. the thing is most people i believe either do not have the downpayment like me or are not optimistic enough to enter at this point. only young people around 30 years old will be buying now i believe. they have waited the last 5 years, or they are starting a family, so they will buy now. to avoid losing the downpayment, we really have to stay in these homes a long time though. a long time... so remember dont buy a condo, buy a real house that you can stay in.

Charles

January 26, 2009 01:40 PM

This sounds great...except the numbers are skewed. We have so much excess inventory or illiquid assets, potential home foreclosures that my calculator caught on fire. This recovery needs to be a two headed approach. 1) Foreclosure Mitigation or Modification 2) Purchase the illiquid assets off the bank balance sheets.. then the housing market will start to recover. Until this happens the metrics that are published are misleading. When is someone going to stand up and produce a formula for the cure?

FBEye

January 26, 2009 01:59 PM

It'll be nice to see homes continue to decline in price so young people can buy one someday, right? We all know that the increase in home prices over the past several years was a facade anyway! Let home prices fall another 25% to 35% in 2009, & into 2010. It'll actually be GOOD for the USA, in the long run. P.S. Watch how interest rates SPIKE as prices of homes adjust to where they should be. The Bankers will have to make-up their LOSSES by RAISING interest rates on MORTGAGES!!! Just watch!!!!!

Phil

January 26, 2009 02:11 PM

This recovery will be short lived if the banks continue their refusal to lend (see last week's increase in mortgage rates). The Fed has lowered the rates but the banks still don't lend and rather build their kingdoms by buying Merill. Increased lending activity should have been a condition in the TARP program.

Squeezebox

January 26, 2009 02:11 PM

Looks like we may finally have some figures for what the mortgage backed securites should really be worth. Assume you have a bundle 100 mortgages of 100K each for a total pool of $10,000,000.00. Further assume 25% of those homes will go into foreclosure. If we assume that the foreclosed homes are only worth 85% of the mortgage value, then we get losses of $375,000.00 or 3.75%. The banks are going to come out okay after all.

Hugo van Randwyck

January 26, 2009 02:41 PM

This is part of the recovery process. When you drop the price, you'll likely sell more. Now is the time for the new Congress to repeal irresponsible lending legislation and ensure loan maximum multiples of 1 income are trending down e.g. upto June 2009, max 4 times earning, Dec 2009, 3.5 times, June 2010, 3 times, June 2010 2.5 times earnings. Bingo, massive disposable income of new home buyers pumping into the economy, and lower rents for low income earners. Maybe anyone with a second home needs to have both homes run on renewable energy.

Scorpio69er

January 26, 2009 02:56 PM

"Bank-owned foreclosures in California, Florida, Nevada, Arizona and other speculative markets are largely behind the sales increases"

Speculators betting on a bottom.

Bad bet.

Bad Bank vs. Mo Mod

January 26, 2009 03:18 PM

The TARP was created to purchase the toxic assets out of the banking arena. We know what happened there, now a combination of bad bank asset purchase and mortgage modifications need to be done to bring the flames of this mess under control. I read another article in BusinessWeek on Friday about the Mo Mod platform, it sounds like it addresses both mortgage modifications and illiquid asset valuation. I would like to know how this will work in the current enviroment with both problems facing our new administration. Wall Street needs to understand the underlying value before $$$ flow back into the pool. Taxpayer needs to be protected at all cost, and Main Street needs large scale production to bite into the problem. We need answers quick and not in 6 months like the past fiasco.

Randy

January 26, 2009 04:39 PM

What they really need to do is speed up the foreclosure process so that it only takes about 3 months from the 90-day default to the repossession. This would lead to price discovery and then we could get started on rebuilding. The economy WILL NOT recover until we hit bottom. Slowing down the descent not only makes it more painful, but rewards those who least deserve it. If every large investment bank fails due to this, then so be it. Those that replace them will have learned a valuable lesson.

Randy

January 26, 2009 04:49 PM

What they really need to do is speed up the foreclosure process so that it only takes about 3 months from the 90-day default to the repossession. This would lead to price discovery and then we could get started on rebuilding. The economy WILL NOT recover until we hit bottom. Slowing down the descent not only makes it more painful, but rewards those who least deserve it. If every large investment bank fails due to this, then so be it. Those that replace them will have learned a valuable lesson.

Snoz

January 26, 2009 05:05 PM

As today's real estate speculators agonize over the carnage and slaughter, it is difficult to remember that it was just yesteryears that Ghopal and Lereah of NAR were telling people about the golden buy-opportunities in real estate. As BW readers now know, Lereah of NAR was "cooking" the numbers to spur real estate sales while Ghopal faciliated that end by just spewing them out in BW for mass consumption. As the real estate bubble grew, people with special vested interest in real estate, including Ghopal and Lereah, ardently painted a even more rosy picture. But as the herd mentality reached its crest, even Ghopal, Lereah, and other real estate disciples were unable to shepherd the frenzy,unruly, irrational herd. Just as Lereah is now treated as the pariah for his wicked ways, Ghopal should not be forgiven, forgotten, or spared for his complicity.

FBEye

January 26, 2009 05:53 PM

The problem of FORECLOSURES will obviously get much WORSE in 2009, & into 2010, because of the amount of JOBS that are being lost in the USA. Just today, there was an Article at CNNMoney.com entitled- "Bloody Monday: Over 68,000 Jobs Lost". This was just in ONE DAY!!!!! It wouldn't be out of the realm of possibilty to see over 6 MILLION jobs being lost in just 2009 alone! If, and WHEN, GM & Chrysler have to file for bankruptcy we'll see that 6 MILLION figure easily eclipsed, in my opinion. Neither the TARP nor the $825 BILLION "stimulus" plan will cure the USA's problems. This is a TSUNAMI. Nothing will be able to stop it! Just watch.

Mo Mod Platform

January 26, 2009 06:40 PM

I checked out Smithfield's Mo Mod platform, it appears to answer or blueprint what we need right now. If proper valuation is in check, then proper underwriting and risk management takes place. I still believe we need to get rid of the toxic assets and have the ability to put them back into the marketplace, along with mortgage modification not only on foreclosures but also on underwater homes.

Banking Solution Mo Mod?

January 26, 2009 06:58 PM

With the Senate confirmed vote of Geithner as Treasury secretary,
The ideas of a two-pronged approach that would allow the government to both purchase assets though a "bad bank" entity and also guarantee assets against further losses (mitigation and modification). This would allow the government to deal differently with securities, such as those backed by real-estate and other assets, and loans, including commercial and residential mortgages. What I have just read about the Mo Mod, it appears it is the blueprint as described above to handle the transactions. We need to get a program like the Mo Mod off the ground if it answers all the questions!

Thomas Jonson

January 27, 2009 11:30 AM

I wish to inform da public of my house which i wanna sell and send da money to my parents so dat dey can sponsor my factories back in my country.

Ballbuster

January 29, 2009 05:04 AM

When gopher Gopal starts quoting the NAR BW readers should starting wondering who is the better liar. As in past years, Gopal has masqueraded advertisement for real estate as a piece of BW journalism. It seems everyone heard about the honest news reporting from Lereah and NAR except Gopal. Even as the real estate market continues to collapse with no end in sight and the economy disintegrates beyond '29 crash, Gopal and the NAR manage to find a silver lining or insinuate a real estate "bottom." Gopal is so adept at pushing real estate on the naive masses that perhaps Gopal works for the NAR or he is furthering his personal agenda. Both Gopal and Lereah should be discredited.

Thank you for your interest. This blog is no longer active.

 

About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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