Fewer sales and more delinquencies mean the housing market slips to just 32% back to normal, a new low for 2012
Each month, Trulia’s Housing Barometer charts how quickly the housing market is moving back to “normal.” We summarize three key housing market indicators: construction starts (Census), existing-home sales (NAR) and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.
In June 2012, construction starts improved, but existing home sales fell and the delinquency + foreclosure rate rose:
—Construction starts jumped. Starts rose in June to a 760,000 annualized rate, up 7% month-over-month and 24% year-over-year. Construction activity was especially strong in Texas and the Carolinas. Now, construction starts are 28% of the way back to normal.
—Existing home sales fell sharply, from 4.62 million in May to 4.37 million in June. Now, home sales are just 35% back to normal to from their worst point during the bust, down from 49% in May: they’re now much closer to their low of November 2008 than to their pre-bubble normal level. That’s a big slide. Tighter inventory, especially of distressed homes, held back sales.
—The delinquency + foreclosure rate went up. In June, 11.23% of mortgages were delinquent or in foreclosure, up from 11.08% in May. (LPS revised its historical data, which changed our barometer measure slightly.) The delinquency + foreclosure rate is 34% back to normal, down a bit from 36% in May.0 comments
Trulia's Chief Economist reviews May's construction starts, existing-home sales and the delinquency-plus-foreclosures rate to see how far away we are from a "normal" housing market.
Each month Trulia’s Housing Barometer charts how quickly the housing market is moving back to “normal.” We summarize three key housing market indicators: construction starts (Census), existing-home sales (NAR) and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.
All three indicators took a step backward in May 2012:
—Construction starts slid back for the month, but up for the year. Starts dropped from an upwardly revised 744,000 in April to 708,000 in May, a 4.8% month-over-month decline. But starts are up 28.5% year over year. Still, construction has a long way to go: starts are just 23% of the way back to normal.
—Existing home sales also decreased. Dropping from 4.62 million in April to 4.55 million in May, home sales are not quite halfway back (45%) to their normal level from their worst point during the bust.
—The delinquency + foreclosure rate ticked upward. (Remember, on this measure, lower is better.) In May, 11.32% of mortgages were delinquent or in foreclosure, inching up from 11.26% in April and 11.23% in March, though down from 12.07% a year ago. The delinquency + foreclosure rate is 36% of the way back to normal, ahead of starts but behind sales.0 comments
Trulia's Chief Economist takes a monthly look at new construction starts, existing-home sales and the delinquency-plus-foreclosures rate to see how far away we are from a normal housing market.
Each month Trulia’s Housing Barometer charts how quickly the housing market is moving back to “normal.” We summarize three key housing market indicators: new construction starts (Census), existing-home sales (NAR) and the delinquency-plus-foreclosure rate (LPS First Look). For each indicator, we compare this month’s data to (1) how bad the numbers got at their worst and (2) their pre-bubble “normal” levels.
April data, released over the past few days, showed:
—Construction starts rose. Starts increased from an upwardly revised 699,000 in March to 717,000 in April. Since November starts have been in the 700,000 range. But starts are still the laggard of the housing recovery: they are just 23% of the way back to normal.
—Existing home sales also increased, from 4.47 million to 4.62 million. Home sales are nearly halfway back (49%) to their normal level from their worst point during the bust.
—The delinquency + foreclosure rate stagnated. (Remember, on this measure, lower is better.) In April, 11.26% of mortgages were delinquent or in foreclosure, versus 11.23% in March, which means that this measure remains 37% back to normal.
Averaging these three back-to-normal percentages together, the market is now 37% of the way back to normal, compared with just 20% back to normal a year ago.
Bottom line: Aside from a dip in March, the recovery is slowly but steadily pushing ahead.0 comments
The Facebook IPO has made a lot of my Bay Area neighbors very rich, at least on paper. And many more of my neighbors are hoping that Facebook’s IPO will set off a strong wave of housing demand that lifts local prices and finally consigns the housing bust to history. And I say to my neighbors: be careful what you wish for. Rarely are there winners without losers. Here’s what Facebook’s IPO – and the strengthening local economy – mean for the Bay Area housing market.
Over the past year, house prices have picked up and rents have been booming in the “Facebook Metropolitan Area” — the 10-mile circle around the Facebook’s Menlo Park campus, roughly from Foster City on the Peninsula down to Sunnyvale in the South Bay, plus Union City and Fremont just across the bridge in the East Bay.
Change in asking prices*
Change in asking rents*
|Facebook Metropolitan Area||
|San Francisco Bay Area (including Facebook Metro Area)||
Note: based on the Trulia Price Monitor and Trulia Rent Monitor, which adjust for the mix of homes and neighborhoods. Changes are year-over-year.
Even before today’s IPO, home prices and rents were rising in the Facebook metro area faster than in the San Francisco Bay Area overall. As Facebook’s flush owners realize their gains, there’ll be even more money chasing real estate in the Facebook metro area and in the San Francisco Bay Area generally. This new wealth should push up prices more than rents since many of Facebook’s employees will make the move to homeownership. And, Facebook aside, job growth in the Bay Area is already strong, so the Facebook IPO is adding fuel to an existing fire.
The Facebook IPO will create lots of winners in the Bay Area. These include employees and investors, of course, who can spend their new wealth on homes or whatever else they want. Other winners are people and businesses who have what Facebook millionaires want – including homeowners looking to sell, luxury car dealers, exotic-adventure-vacation tour operators, and so on. The dry cleaner and coffee shop owners in Menlo Park will be happy, too, but Facebook won’t change their lives: Facebook employees might celebrate their IPO by buying a car ten times more expensive than their current clunker (just don’t drive it to work), but they’re probably not going to go from one latte a day to ten.
But because Facebook is in the Bay Area, its IPO will create losers. Here’s why. If Facebook were in Texas or North Carolina, developers would have been building new homes in anticipation of this day. But in the Bay Area, water and the hills leave little land for development: the area in the bay under the Dumbarton Bridge would be an easy commute to Facebook if you could only build housing on the water. In addition, building regulations make development difficult on the precious flat land that exists. As a result, little new construction is underway in the Bay Area – far less than in other metros with similar job growth. Furthermore, San Francisco and San Jose were spared the worst of the housing crash and have relatively few homes in foreclosure. Without new construction or foreclosed homes coming onto the market, Bay Area housing inventory is vanishing: it’s down 40% year-over-year.
So all that new Facebook money will be competing with the rest of us for the limited supply of homes and apartments. Even if you’re that luxury car dealer watching your sales go through the roof, the kid you just sold the Lamborghini to will outbid you for that home in Woodside. Rising home prices and rents – good as they are for current homeowners and for landlords – raise the cost of living in the Bay Area. That means that businesses across the Bay Area will need to pay their employees more to keep up with rising housing costs – or decide to conduct their business elsewhere.
These are by no means new challenges for the Bay Area. Steady demand for housing, combined with tightly constrained supply, has kept real estate prices in the Bay Area – and in much of California — among the highest in the country for decades. Before this recession, when people in the Bay Area said “housing crisis” they meant a shortage of affordable housing. The recession and drop in home prices pushed concerns about affordability into the background, with foreclosures and overbuilding taking center stage. But as the Facebook IPO sends home prices higher, we’ll look back at today as the day the Bay Area stopped worrying about falling prices and remembered how expensive it is to live and do business here.0 comments
Originally published in The Atlantic Cities on May 4, 2012.
Construction activity came to a near-halt after the housing bubble burst. The number of new residential units authorized in 2009, 2010, and 2011 was less than one-third of the level during the boom. In 2011, construction activity picked up slightly from 2009 and 2010, as the housing recovery began, with permits for new multifamily buildings leading the construction recovery. Multifamily construction has increased because rental demand rose during the recession as people chose not to – or were unable to – buy or keep their homes. Just this past year, rents rose 5.6 percent nationally according to the Trulia Rent Monitor, and that encourages builders to construct new multifamily buildings.
As always, housing is local. Construction is gearing up in some markets and remains dormant in others. These patterns are critical for understanding the future of cities, for two reasons.
First: construction activity is a bet on future growth. Developers will build only in areas where they expect housing demand in the future. Of course they can bet wrong, and that’s what happened during the housing bubble; construction in many metros far exceeded housing demand, and lots of newly built homes were (and still are) vacant. Still, construction is a clear signal of builder confidence in an area.
Second: construction shapes urban form. Housing units live a long time and are rarely destroyed, so new construction has a long-term impact on density and sprawl. The primary tool that officials have to affect density, sprawl and urban form is deciding what type of new construction, if any, to allow in different communities.
What do construction patterns say about the future of cities in America? This week the U.S. Census Bureau released data on construction permits issued by localities in 2011, including whether those permits were for single-family homes or units in multi-family buildings.
Metros with the Most Construction Permits
|Metro||Construction permits, 2011||Percent of permitted units in
multi-family buildings, 2011
|Houston, TX||31,271||27 percent|
|Dallas, TX||18,686||49 percent|
|Washington, DC||16,501||51 percent|
|New York, NY||13,973||91 percent|
|Austin, TX||10,239||39 percent|
|Los Angeles, CA||9,895||77 percent|
|Phoenix, AZ||9,081||20 percent|
|Seattle, WA||8,664||47 percent|
|Atlanta, GA||8,634||28 percent|
|San Antonio, TX||7,127||38 percent|
More permits were issued in the Houston metro area than in any other metro, by far. Four of the top ten metros were in Texas. But this list is dominated by large metro areas, and we’d expect bigger areas to have more construction activity. Looking instead at the number of permits issued per 1,000 existing housing units shows the impact of construction on metro areas relative to their size. Here are the top and bottom ten metro areas by construction activity, among the largest 100 metro areas:
Most Construction Activity
|Metro||Construction permits per 1000
housing units, 2011
|El Paso, TX||15.36|
|Little Rock, AR||10.53|
|Baton Rouge, LA||9.51|
Least Construction Activity
|Metro||Construction permits per 1000
housing units, 2011
|Long Island, NY||1.65|
|New Haven, CT||1.90|
|Ventura County, CA||2.02|
The rate of construction is highest in metros within Texas and the Carolinas and lowest in the Northeast and Midwest. The map shows the pattern across America. The rate of construction is higher across the Texas, the mid-South and Mountain states, but lower in New England, the Great Lakes, South Florida and most of coastal California.
Two factors stand out to explain which areas have the most construction. The first is long-term employment growth, which is the best guide to future housing demand. The second is smaller recent price declines: metros where prices fell less during the bust had less overbuilding and are therefore ready to absorb new housing. Among the ten metros with the highest rate of construction, all had above-average job growth over the past ten years, and none had experienced the huge home price declines that the hardest-hit areas did during the crash. Builders and developers are betting on metros with solid histories of job growth that escaped the worst of the housing crisis.
What does construction activity mean for urban form? The mix of single-family versus multi-family permits is a strong guide. Multifamily construction is higher density than single-family construction, and single-family construction is more sprawling. For the U.S. overall, one-third of the construction permits in 2011 were for multi-family units. But the multi-family share ranged widely among the largest metros, from 91 percent of permits issues in the New York metro and 86 percent in San Francisco all the way down to 2 percent in Dayton, OH, and 3 percent in Palm Bay-Melbourne-Titusville, FL. In Houston, where more permits were issued in 2011 than anywhere else, just 27 percent were for multi-family units. But not all of Texas is sprawling: in Dallas, 49 percent of permits were in multi-family units, well above the national average. In Los Angeles – which used to be the poster-child for sprawl – 77 percent of new permits were for multifamily units. Among the top permit-issuing places, Phoenix has the lowest share of multi-family permits at 20 percent, along with Houston (27 percent) and Atlanta (28 percent).
The future of sprawl, therefore, is not California. Houston, Phoenix, and Atlanta are America’s current capitals of low-density construction. Builders are betting on future growth in the South, in Texas, and in the Southwest, and they’re building single-family homes to meet that demand.