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Homes in Santa Clarita, California. The August Case-Shiller index shows prices moving back to 2003 levels.
It might be safe to call a housing bottom at this point. The monthly Case-Shiller home prices index has just come out for August, and it shows prices increasing in 19 of the 20 cities the index tracks.
This is from the release:
The 10- and 20-City Composites recorded annual returns of +1.3% and +2.0% in August 2012 – an improvement over the +0.6% and +1.2% respective annual rates posted for July 2012.
For Los Angeles, the story is much the same as it has been for the entire year so far: slow and steady progress. The August increase exactly matched the July increase, at 1.3 percent. April, May, and June were all higher, but only in May did the city exceed a 2-percent gain.
Although compared with last August (the Case-Shiller data lags by two months, which is why we're getting August numbers in late October), the situation is markedly improved over July. Los Angeles saw a 2.1 percent increase year-over-year for August; in July, prices only increased by 0.4 percent.
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It might look terrible, but you can't afford it.
The California Association of Realtors has just released data for September pending home sales in the state. The report contains what should now be a familiar refrain to both potential home buyers and sellers in California's market: we just don't have enough houses for sale to meet buyer demand.
One of the real areas of stress is with foreclosed "real estate owned" (REO) properties. According to the CAR, there's barely a two-month supply of REOs in the entire state. Coupled with other inventory shortages — we haven't buily much new housing in California since the bubble burst four years ago — this is driving up prices, particularly at the lower, entry-level end of the market.
There's a whiff of consumer panic in the air. Constrained supply is leading to ferocious competition for sub-$500,000 houses. We're feeling the REO crunch in Southern California generally – and L.A. in particular – as supply has fallen substantially since this time last year. Historically low interest rates — dirt-cheap money — are colliding with surging demand to create a bit of a bubble. Prices look attractive, given how far they've fallen from their highs in the mid-2000s.
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A sign is seen outside of a KB Home sales center in Richmond, California. A lack of housing supply in the Western U.S. is spurring homebuilders to start building again.
The National Association of Realtors (NAR) has released its pending home sales index for August. The index fell a bit from July but is up more than 10 percent from last August.
That's the national picture. But in the West, the story is...well, distorted. The July-August decline was more than 7 percent, and the year-over-over year was more than 4 percent. What's to blame? A lack of housing inventory, according to the NAR.
I've been noting this trend often here at the DeBord Report. It's both good and bad. Good because a lack of supply to meet demand is encouraging homebuilders to...build! And that means unemployed construction workers have a good chance in the future to be not unemployed. But it's bad because the lack of supply, combined with historically low interest rates, is driving up prices. And it's dragging down pending sales — because there just aren't enough homes to be pending a purchase!
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A construction worker on the top of a home under construction at a new housing development in Petaluma, California. Sales of new homes have been rising, as have prices. Meanwhile, interest rates are low. But that doesn't mean it's a good time to buy.
The Commerce Department released data on August new homes sales today. Bottom line: sales were flat from July to August, but well up over last year: 18 percent. That sounds great, but there are several other factors to take into account. First, the latest Case-Shiller index provides strong evidence that housing prices in the U.S. are forming a bottom (don't get too excited — we're only back to 2003 levels, even with hard-hit regions like Phoenix posting double-digit price gains).
Second, housing inventory in Southern California is tight. The supply of foreclosures coming to market is being reduced, and during the downturn, homebuilders didn't do much building.
Third, that lack of supply is colliding with a surge in demand, as buyers decide to take advantage of low prices and historically low interest rates. The interest rates are the Federal Reserve's doing; the central bank wants people to buy houses and bid up prices to get the housing market back on its feet and restore equity appreciation to borrowers who now owe more on their mortgages than their homes are (for the time being) worth.
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A sign is seen outside of a KB Home sales center in Richmond, California. The company beat Wall Street expectations for its third quarter.
KB Home turned in a better-than-expected earnings report today, for its third quarter. It beat Wall Street's expectations by two cents per share — $0.15 versus $0.13.
More importantly, the company, based on Los Angeles, anticipates a housing recovery in California finally moving off the affluent coasts and making it inland, to regions that were decimated by the financial crisis. The state doesn't have enough housing inventory to meet current demand, which is pushing up prices. We need to build new houses. And it's less costly to build those houses inland.
In a conference call with analysts Friday morning, KB Home chief executive Jeffrey Mezger said that while demand remained strong in the coastal markets of California -- places such as the Bay Area and Orange and Los Angeles counties -- the company was now experiencing strength in more inland markets as well.
“We are now seeing dramatically improved market conditions,” Mezger said. “It is simply a different market than it was six months ago in the inland areas.”
Mezger repeated several times that the company is now going “on offense” and will continue to aggressively acquire land.
“The housing market recovery is accelerating as inventory continues to decline and prices are now rising,” Mezger said. He said that California, in particular, was set to continue recovering and that the company was well positioned to take advantage of those improvements.