Thursday, 23 April 2009

Existing Home Sales Data Mar 2009 - What does it means?

I have posted Real Estate related data and its relationship with Economy a few days ago.

NAR (National Association of Realtor) has announced March 2009 existing home sales, One of the key real estate related data as follows:

- Compared to March 2008, sales price has gone down by 12%. Compared to previous month, mediam price has increased to $175,200 from $168,200.

- Number of transactions have declined by -12% (seasonally adjusted) and -7.1% compared to Feb 2009 and Mar 2008 respectively.

- Pushed by $8000 tax credit and low interest rate, first time home buyer represents 53% of total transaction (it is usually at around 20% in regular market).

- As for the inventory, it has increased to 9.8 month, compared to 9.7 month in Feb 2009.

From this data, it is hard to conclude that real estate market hit the bottom while seasonally-adjusted transaction has increased to 4,570,000 from all-time-low 4,490,000 in January 2009.

One critical issue that characterize today's market is 53% of transactions is from first time home buyers. This shows how tax credit and low-down FHA loan is boosting demand among first time home buyers who were priced out during housing bubble.

Problem is, since first time home buyers, in average, put at or less than 5% down payment, in case of job loss or continued real estate decline, its mortgage's default rate is very high. In fact, it is said that default rate on FHA loan among first 3 years is about 20% range.

In regular market, move-up buyers represent 50%+ of total transactions. But many existing home owners can not sell the property due to negative equity situation. This contributes to dangerously high first time home owner oriented market. In fact, US Census just report that More in U.S. Are Staying Put.

I am not sure how long first time home buyers can drive residential real estate market as Tax Credit will expire on November 31st 2009. Unless existing home owners are back in market, real estate transaction may begin to slow down.

The other issue is inventory of properties. For last 5-6 month, lenders were encouraged by government to stop foreclosures, until Obama's housing affordability program is in place. Now that plan is announced, lenders accelerated foreclosure process. In addition, experts forecast that there are 600,000 - 1,500,000 shadow inventory of foreclosed properties. This pretty much guarantees that glut of foreclosure properties will continuously hit the markets at discounted price. While it depends on markets, you still have time to evaluate entry timing!

Happy Investing!!!!!

No comments:

Post a Comment