September 9, 2017

An Expanding Pool Of A Dour Perception On Housing

A report from the Houston Chronicle. “Two weeks after Hurricane Harvey unleashed the worst flooding in Houston’s history, tens of thousands of families are beginning an uneven recovery in hotels, rentals, family members’ homes and flood-damaged apartments. Officials estimate as many as 136,000 homes and structures in Harris County flooded, but it remained unclear Friday how many were single-family houses, apartments, commercial or public buildings. Occupancy for so-called Class A units - those in the nicest and newest buildings - was 82 percent before Harvey hit, according to Apartment Data Services; it was 91 percent in moderately priced complexes.”

“As high-end occupancy ticks up, landlords have started pulling the generous rent concessions they were offering to lure tenants before the storm. ‘In all this misery, that’s been some good news,’ said Stacy Hunt, an executive director in Houston with Greystar, an apartment owner and manager. ‘There was a ready supply of new construction apartments.’”

“Halfway through a survey of area complexes, Houston-based Apartment Data Services has identified at least 6,668 apartments damaged by Harvey’s flooding. By comparison, Apartment Data Services President Bruce McClenny said about 5 percent of the apartment stock was damaged by Tropical Storm Allison, or around 20,000 units. He also noted that before Harvey, there were more than 43,000 Class B, C and D apartments available.”

The Houston Press. “Arthuro Martinez is sleeping on a couch, without cushions, in the middle of his largely destroyed and musty apartment. Carlos Adolfo Rubio and his wife, Gloria, are sharing one mattress with their two children, after losing just about everything else. And Maria Soto says no matter what room she and her kids sleep in — two of them have autism — there is mold growing on the walls. There is mold growing on all of their walls. But the rent is due. It is due even if they decide to move elsewhere to escape the mold, each person told us.”

“‘They told me I have to pay, and that if we don’t, there will be an eviction,’ Soto said (she added she had until the end of the month, but Martinez and the Rubios said they had no such leniency). ‘I have to pay for other stuff. I have to pay for clothes for the kids, shoes — all the shoes got wet. I have to buy new shoes for everybody. I’ve been looking for a new apartment for a week, but it’s so expensive everywhere.’”

From National Mortgage News. “Just a week after Hurricane Harvey struck Houston, Irma Jalifi was doing something that might sound crazy: closing on a home. In fact, Jalifi, a real estate agent with Redfin, closed on not one but three Houston houses Tuesday at their asking prices — two at $1 million and a three-bedroom at $450,000 — as the new economics of Houston housing began to take hold.

“The calculus of disaster is simple, if cold blooded. Many whose homes have been flooded must move, and those who dodged Harvey now sit upon some of the city’s most desirable addresses. Far from declining, prices and rents are expected to rise given the sudden housing shortage. Out-of-state investors have even started to swoop in to acquire damaged homes to repair and sell or rent. ‘It’s as if we hit a reset button on the market,’ Jalifi said.”

The American Statesman. “Houston area Realtor Shad Bogany had five closings scheduled for the week of Aug. 28. And then Hurricane Harvey happened, drowning Houston with 51 inches of rain and paralyzing the city for nearly a week. All of those closings were put on pause, Bogany said, and he expects some of those deals will never happen. ‘A lot of Realtors are probably having a loss of income,’ Bogany said. ‘Imagine you had a bunch of listings in a certain neighborhood that flooded — you’ve lost all of that.’”

“Metrostudy, which tracks the housing market, said the Houston metro was estimated to be oversupplied by 62,000-plus homes and apartments before Harvey hit. Ed Wolff, president of Beth Wolff Realtors in Houston, said the apartment occupancy rate went from 81 percent before Harvey, to 97 percent recently.”

“Homes that have flooded, if they are being sold as-is, will see their prices drop between 10 and 20 percent, Realtors said, though it depends on how susceptible the area is to flooding. Wolff met Wednesday with a seller whose house would have been marketed for $470,000 before Harvey. Now, Wolff said the list price more likely will be $370,000 for the Meyerland home, which Wolff estimates will need about $50,000 in repairs. Wolff said he doesn’t think there will be a mass exodus of Houstonians pulling up stakes. ‘I feel like Houston is like the banks – too big to fail.’”

The Dallas Morning News. “Hurricane Harvey will send clouds through the entire Texas real estate market, slowing overall home sales and affecting prices. The damage from Harvey will have an immediate impact on Texas’ housing activity, said Dr. James Gaines, chief economist with the Real Estate Center at Texas A&M University.”

“‘Texas was on pace to set another record in 2017,’ Gaines said. ‘I think the downturn in the Houston market will be enough to keep us from getting there. We’re expecting a short-term real significant drop in sales, employment, you name it.’”

From My High Plains. “Amarillo home sales decreased 9.2 percent in the first half of 2017 to 1,561 single-family home sales. Statewide, Texas home sales volume increased 5.5 percent to 166,256 home sales, while median price increased 7.7 percent from the year prior to $221,800. The number of homes on the market also grew significantly statewide in the first half of the year, with active listings increasing 5.9 percent year-over-year to 99,398 active listings. This uptick in housing stock has helped lead to a much-needed increase in housing inventory, which ended at 4.1 months in June 2017. This is only the second time in three years that Texas housing inventory levels have surpassed 4.0 months.”

From Danielle DiMartino Booth. “Something is up, or more likely down, with the U.S. housing market. And the reconstruction after Hurricane Harvey may not do much to help. Here’s the evidence: The latest take on home-builder sentiment showed that buyer traffic stubbornly remains in negative territory, despite some of the highest readings of the current cycle on builders’ expectations for sales gains in the next six months.”

“In addition, recent mortgage rate declines have not led to an increase in applications to buy a home. Over the past few weeks, purchase activity has slumped to a six-month low, even though rates are at their lowest level since November. This defies a central tenet of the housing market that falling rates naturally lead to an uptick in sales. As for actual sales volumes, both new and existing July home sales missed forecasts by wide margins.”

“Prices have been and remain the main impediment. The median new home sales price of $313,700 marked the highest July price on record and is up more than six percent over last year’s level. At an annual gain of 6.2 percent, the best that can be said of the median sales price for previously occupied homes is that it’s off the record pace it set in June. Corroborating the slowdown in sales, both the Federal Housing Finance Agency and S&P Case-Shiller home-price indexes have softened unexpectedly.”

“The latest results from the University of Michigan Survey of Consumer Confidence Sentiment speak volumes. While all buyers have expressed dismay at home price gains, those between the ages of 18 and 34 have been particularly alarmed. The survey also showed an expanding pool of those with a dour perception on housing. Thanks to high prices, both upper- and lower-income cohorts as well as those in the West and the South now say they’re pessimistic about buying a home. Likewise, prime-age buyers (ages 35-54) are now echoing their younger counterparts’ laments about prices.”

“Looking ahead, pending home sales suggest the summer’s data are anything but an aberration. The pending home sales index has fallen in four of the last five months, with July coming in particularly weak, down 0.8 percent compared to the consensus forecast, which called for a rise of 0.4 percent.”

“For years, Lawrence Yun, chief economist at the National Association of Realtors, has cited constrained inventories of homes as the main driver of any weakness in the sales figures. After the recent spate of disappointments on the pending home sales front, Yun added the following perspective on prices: Over the past five years, median home prices have risen 38 percent while hourly earnings have increased by just 12 percent. This yawning gap has pushed affordability to its lowest level since 2008.”

“Tellingly, the most recent data from Challenger, Gray & Christmas revealed a jump in construction worker layoffs. The mitigating factor will be the tremendous demand for workers to repair and eventually rebuild Houston and the surrounding region after the devastation wreaked by Hurricane Harvey. What is less of a certainty is the long-term effect of the storm. About 1.2 million homes in and around Houston were at moderate to high risk for flooding but aren’t in a designated flood zone that would have required insurance.”

“Many will qualify for federal disaster relief. Still, the government program comes in the form of low-interest rate loans to help shoulder the burden of repair costs at a time when many households are already buried in debt with precious little in savings; as the third quarter got underway, the saving rate fell to 3.5 percent, a fresh low for the current cycle.”

“Although many have drawn comparisons to the aftermath of Hurricane Katrina, Harvey will affect more than twice as many mortgaged properties. According to Black Knight Financial Services, of the 1 million or so mortgaged homeowners in the disaster area, more than 300,000 could become delinquent within two months, and 160,00 are at risk of becoming seriously delinquent inside a four-month period.”

“As per the Mortgage Bankers Association, homes in foreclosure nationwide totaled 502,437 in the second quarter, exemplifying the very real potential for Harvey to leave a huge scar on the housing market. It is clear investors are banking on the rebuilding effort becoming its own macroeconomic engine of growth. With housing clearly peaking, the nearer-term risk is that Harvey’s devastation solidifies broader market woes.”