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TDRH (99.85)

Median Home Price Falling Closer to levels of Qualified Median Income

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March 23, 2009 – Comments (8)

 

Realize that I have probably worn out my welcome with this breakdown, but one key factor in the housing data today was the median home price. 

From This article:  http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-032309.aspx?icid=dispatch_090323

 Existing-home sales showed a surprising 5.1% jump in February, the National Association of Realtors said in a report today, the biggest percentage gain since July 2003.

The unexpected increase was partly due to "deep price discounts," the NAR said, and was well above economists' expectations of a 0.8% to 0.9% decline. The median sales price fell 15.5% to $165,400 from February 2008.

Inventories of unsold homes rose by 5.2% to 3.8 million, which represents a 9.7-month supply.

 At 165,400, the median home price is falling within range of the historic range with median income.

Article from 2007 that I have linked here too many times.  http://efinancedirectory.com/articles/The_Dangerous_Disconnect_Between_Home_Prices_and_Fundamentals.html

In my humble opinion/estimation, based on current interst rates and employment levels,  we are within 10-15% of the bottom of the housing price decline.   This does not mean that it is the bottom of the market, or a time to purchase homebuilders or REIT's.  It just means that housing prices are nearing equilibrium with qualified demand. 

With 9.7 months of supply, and rising unemployment, there are many quarters of pain ahead.  This is not a "recovery", but an equilibrium or stabilization.  Many will argue that we will overshoot the bottom, and prices have further to decline.    This could be the case still, but I believe that if this occurs the market will return to these levels and stagnate there for some time. 

 What does this mean for my investments?   I do not have the answers, but I do know that the companies that survive this meltdown and that maintain their economies of scale, will awaken to a bleak competitive landscape, with reduced availability of leverage for their competitors to use to try and take market share.   There has been and will continue to be a "divergence" (stolen from Floridabuilder" of investment dollars from these survivors and the pretenders.  

 

 

8 Comments – Post Your Own

#1) On March 23, 2009 at 11:43 AM, EverydayInvestor (< 20) wrote:

I think 1 year from now will be a great time for anyone who wants to invest in real estate (and who knows what they are doing) to buy rental properties. Around that time we should be seeing 10% to 15% free cash flow yields on small apartment buildings (4 to 8 units) in most average cities. I'd probably wait an extra year before wanting to invest in REITs, and then only in those with moderate debt and good cash flow. At that point we might see a number of REITs yielding over 10% again.

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#2) On March 23, 2009 at 11:46 AM, tonylogan1 (28.66) wrote:

we are so far away from the bottom of this. The NAR is a joke, and basing any investment decisions on reports or comments from them is silly.

wait for Employment to stabilize, not for an increase in foreclosure sales (which is what drove the increase in sales) to indicate where the bottom lies.

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#3) On March 23, 2009 at 11:53 AM, Rehydrogenated (35.56) wrote:

The Fed will inflate us that next 10-15% to median income. It's already getting priced into the value of the dollar.

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#4) On March 23, 2009 at 12:01 PM, russiangambit (29.94) wrote:

Just remember that housing market is very slow. It will take another year at least , or even two to get wherer it is going. For this year, forget about homebuilders, other than playing the short squeeze on government news.

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#5) On March 23, 2009 at 7:06 PM, TDRH (99.85) wrote:

Tony, I agree "The NAR is a joke", but the prices are falling to levels that increase the number of available qualified buyers.   This is how the 9.7 month supply will be absorbed. 

Russian, it will take time, but the important thing is that we reach equilibrium/stabilization.   In my backwards way of thinking, the falling prices are a sign that we are contracting as is necessary in order to reach this point.  At the current rate of decline, with all other factors held constant I see the housing market leveling off in September/October of this year.  

Rehydrogenated -I believe the steps that the Fed and Treasury are highly inflationary for dollar based commodities and US imports,  but not housing/real estate   As unemployment continues to rise, housing prices may actually overshoot the bottom as outlined by DemonDoug sometime back. 

Everyday is probably right as far as a real estate investment timeframe, I am not saying to buy in September or October, or on the day the median home pirce hits 150K.   I am saying that the contraction will be over, the chips will have fallen where they may, and we need to determine which remaining companies will have a competitive advantage over their peers going forwrward. 

When I am talking about lookign for companies with competitive advantage, I am looking just at  real estate and homebuilders.  Not sure I would touch any of the homebuilders.    In my opinion the key factor for any segment of our economy going forward is reaching the stabilization in home values. 

Thanks for reading anyway.  

 James

 

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#6) On March 23, 2009 at 8:40 PM, tonylogan1 (28.66) wrote:

The reason I mention NAR is a joke is that the 9.7 month supply number is provided by the NAR. (and all the other stats here)

How many homes are owned by the banks but are not included in the 9.7 month supply?

Well, your friendly neighborhood realtor is not going to tell you that answer.

The sales of homes went up this month, but the inventory also went up. This is due to the fact that as homes are selling, the banks are slowly releasing foreclosures.

And last, but not least, would you trust a used car dealer to give you statistics about what price he can sell you a car? No, NAR is out to fool you, just as they have been for years and always will be.

ps. "You'll be kicking yourself if you dont buy soon... "

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#7) On March 24, 2009 at 8:47 AM, TDRH (99.85) wrote:

Tony,  I have been bashing the NAR along with the rest of the fools for some time.   You are correct.   The Case Shiller index would have been a better reference.   Will be interesting to see how the Case Shiller numbers compare to the NAR reports.   

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#8) On March 31, 2009 at 5:53 PM, tonylogan1 (28.66) wrote:

so.... case shiller is in... gotta think the NAR was a little optimistic. Surprise!!!

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