Well the trip to Maine went well. What a beautiful state… although, it was a bit difficult to see it through all those home for sale signs!Cripes!… It’s really a sorry state of affairs up there.
They seem to be taking the housing decline a lot harder than we are down here in Massachusetts, possibly as a result of a combination of second homers and skittish “investors” jumping ship and the general lack of a robust economy.
It was amazing though to see what some sellers were asking for homes up there.
One FSBO seller had what appeared to be an elongated old tool shed dropped off on a corner lot, with no water view, priced at $250,000!
Also, although waterfront anywhere is premium and Maine’s coast is uncrowned and largely unspoiled, especially when compared to Mass and Rhode Island, there is so much of it up there…
There must be like 50 trillion miles of tidal frontage just in the Casco Bay region alone. It just winds on and on… bay, inlet, island, river, bay inlet, island, etc…
Supply is everything and I think at some point in the near future prices for coastal property will come back down to earth.
It wasn’t long ago that you could take a drive up to Maine and if you saw a nice three season cottage on a good size plot with tidal frontage that was to your liking, you could practically whip out your MasterCard and buy it outright!
Looking at the May results for home sales and median price for Maine I think a substantial price correction is well underway and likely heading for more declines.
Statewide, single family home sales were down 18.56% in May as compared to May of 2006 with the median price dropping 2.01% to $193,000.
Additionally, a majority of Maine’s coastal counties showed median price declines with the most notable being Washington County where prices slid 20.01%!
Oh Well…
So, the May Pending Home Sales Index was a real shocker ehh?You could picture Lawrence Yun, the current Chief Economist of the National Association of Realtors (NAR) sitting in his office thinking “hmm… nationally, the existing home sales contract activity has just dropped below the average seen in 2001 and things just seem to be getting worse…. How do I put it…. Thinking… thinking…. Well… hmmm… well at least some regions were up!”
Too bad Lawrence and NAR forgot to mention that the only regions that were up were on a volatile month-to-month basis.
In fact, on the more relevant year-over-year basis, EVERY region was down and down BIG.
Additionally (and really incredibly), nationally and in every region except for the South, contract activity has now dropped below the average seen in 2001.
What we are experiencing is truly a national slowdown and nothing could indicate that more than a continuation of the decline in demand for existing homes.
The full extent of the drop in pending homes sales can be best visualized with the following charts.
The following chart shows the national Pending Homes Sales Index since 2005 compared monthly. Notice that each year, the months value is decreasing consistently (click for larger version).
The following chart shows the year-over-year changes to the national Pending Home Sales index as well as comparing the latest results against the values seen in the peak year of 2005 (click for larger version).
The following chart shows the pending home sales index nationally and for each region tracked (click for larger version).
Keep in mind that in the above charts, I had to use the Not Seasonally Adjusted (NSA) data series as NAR changed the methodology for their Seasonally Adjusted (SA) series a while back and never republished the numbers. This is why none of the data appears to be breaking below a value of 100 because it’s the SA series that is now below 100.Look at the May pending home sales results and draw your own conclusion:
- Nationally the index was down 13.3% as compared to May 2006.
- The Northeast region was down 9.6% as compared to May 2006.
- The West region was down 13.7% as compared to May 2006.
- The Midwest region was down 11.7% as compared to May 2006.
- The South region was down 15.4% as compared to May 2006.
The Mortgage Bankers Association (MBA) publishes a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as application volume for both purchase and refinance applications.
The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.
The latest data is showing that the average rate for a 30 year fixed rate mortgage declined since the prior week remaining near the peak for the year at 6.50% while the purchase volume increased 2.0% and the refinance volume decreased 2.6%.
It’s important to note that the data is reported (and charted) weekly and that the rate data represents average interest rates, and the index data represents mortgage loan application volume for home purchases, home refinances and a composite of all loans.
The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since January 2007.
The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).
The following charts show the Purchase Index, Refinance Index and Market Composite Index since January 2007 (click for larger versions).
Finally, there was an excellent piece on Bill Moyers Journal featuring Gretchen Morgenson, Pulitzer prize winning financial columnist with the New York Times, discusses at length the details of the housing and mortgage meltdown.Morgenson, in no unequivocal terms, correctly labels the housing run-up a “bubble” and a “mania” and also blames, amongst other things, Wall Street backed easy lending, lightly regulated mortgage brokers, and lax rating agencies as major causes.
She further suggests that the decline is not over and that will be protracted and “not pretty”.
It’s good to see the traditional media at last cutting bait with the NAR charlatans and reasonably accurately reporting the reality at hand.
Watch the complete clip on BNN!
It’s good to be back!
