OK, I am the first to admit I have an alert concerning local real estate. I usually receive updates from The Denver Post, The Denver Business Journal, BusinessDen and other local sources of business news. However Denver and Colorado are not an island in a vast sea and at times we seem to forget we are part of a larger country and may be missing signals concerning the overall national housing market.
Last week a grouping of news came out on the same day that cause me to suggest proceed with caution. Granted many of my peers suggest I am a pessimist, however with almost three decades in the real estate business I have witnessed everything from exponential growth in prices to foreclosure listings offered by The Department of Housing and Urban Development (HUD) when published in the newspaper secured their own pullout multipage section. Thus when the following news hit the wires last week I said to myself “The Dow is at 26,000 however the tea leaves concerning housing seem to be advising caution”. The following is a longer than average blog post for me, thus highlights are in BOLD and there are various links as well.
Home Depot: This retailer is actually one of my favorite indicators concerning the housing market. In flush times Home Depot’s stock is in-demand due to being a favorite supplier for independent contractors, homeowners and related entities. This is a stock so sensitive to housing that when a Hurricane hits a populated area not surprisingly Home Depot stock price rises and the company has its own Hurricane Command Center.
On Tuesday 2/26 Home Depot reported fourth-quarter earnings and sales that missed analysts’ expectations and offered a weaker-than-anticipated outlook for fiscal 2019. With U.S. home sales and prices under pressure, fewer shoppers are heading out to buy materials for home projects and renovations. For much of last year, confidence in the U.S. housing market soared, benefiting Home Depot and Lowe’s. But with mortgage rates climbing, attitudes have since started to turn sour. This may lead to home prices rising at a slower rate and the market cooling down, which has sparked some fears for the sector.
Housing Starts: The number of homes being built in December 2018 plunged to the lowest level in more than two years, a possible sign that developers are anticipating fewer new houses to be sold this year. The Commerce Department said Tuesday (2/26/19) that housing starts fell 11.2 percent in December from the previous month to a seasonally adjusted annual rate 1.08 million. This is the slowest pace of construction since September 2016.
Over the past 12 months, housing starts have tumbled 10.2 percent. December’s decline occurred for single-family houses and apartment buildings. Builders have pulled back as higher prices have caused home sales to slump, suggesting that affordability challenges have caused the pool of would-be buyers and renters to dwindle.
The S&P/Case-Schiller Index: I have profiled the Case-Shiller Index in past blogs and is one of the statistics that I am most interested in and intrigued by as it offers an immediate snap-shot of the market’s health as well as historical reference and thus while somewhat complex concerning its data; the empirical information provided is invaluable.
Home prices increased 4.7 percent annually in December 2018, down from 5.1 percent in November, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.That is the slowest pace since August 2015. The 10-city composite annual increase came in at 3.8 percent, down from 4.2 percent the previous month. The 20-city composite rose 4.2 percent year over year, down from 4.6 in the previous month.
Las Vegas, Phoenix and Atlanta reported the highest year-over-year gains among the 20 cities. In December, Las Vegas prices jumped 11.4 percent year over year, followed by Phoenix with an 8 percent increase and Atlanta with a 5.9 percent rise.Three of the 20 cities reported greater price increases in the year ending December 2018 versus the year ending November 2018. Of note impressive gains for Las Vegas and Phoenix; two cities that represented the irrational exuberance of real estate speculation during the 2000’s only to be the symbols of foreclosures and negative equity during the Great Recession.
In addition affordability is at the lowest in about a decade, and home sales were sharply lower at the end of 2018. Prices usually lag sales, so it is likely price gains will continue to shrink until sales make a move decidedly higher.
According to the National Association of Realtors sales of existing homes were 8.5% lower in January 2019 compared with January 2018, Homes are now sitting on the market longer and sellers are cutting prices more frequently.
I am the first to admit anyone can manipulate statistics yet it seems there is a convergence of cautionary news out there. I do not see myself as a pessimist, more of a realist. Yes real estate is emotional, it is not liquid like equities and for most of us it represents the largest purchase and subsequent debt servicing of our lives. Thus why I suggest proceed with caution and be rational.