A Gloomy Outlook for Home Sales’ Big Season
Christian Punsal, 24, bought this three-bedroom home in Elk Grove, Calif., for $193,000.
The “For Sale” signs are just starting to sprout, but already experts worry that this spring home-buying season will be even grimmer than the last.
Despite tentative signs of recovery in hard-hit areas like California and Florida, the broader housing market is far from reaching bottom, economists say. Across much of the nation, prices are likely to keep falling into 2010.
So this March-to-June season, when most homes are bought and sold, will be bad, perhaps the worst since the market began to spiral down in 2006.
Across the nation, 19 million houses and apartments — nearly one out of every seven — are vacant, the highest percentage since the 1960s. But only about six million of those homes are for sale or for rent. That means millions more could still flood onto the market, depressing prices further.
For would-be sellers, the bad news keeps coming. This week, one new report showed that one in nine mortgages was delinquent or in foreclosure, while another showed that January contract signings for sales of previously owned homes fell at their fastest pace in two years.
On Wednesday, the Obama administration announced details of a plan that will pay banks to lower monthly payments for troubled borrowers, hoping to avert millions of foreclosures and keep more homes occupied. Despite that effort, most analysts expect the outlook to worsen.
But as the recession deepens, the downturn in housing, where the economic crisis began, is starting to play out in new, unexpected ways. Cities where home values held up last year are suffering now, while some suburban areas where prices plunged are slowly starting to improve.
In inland areas of California, for instance, sales are surging now that prices have fallen sharply. But most of the sellers are not individuals but rather banks that foreclosed on homeowners who could not or would not pay their mortgages.
By contrast, in cities like New York and San Francisco, where prices have not fallen as much, the market is largely frozen.
“The further you get from the city, the more prices have declined, and that’s where we see sales increasing,” said Glenn Kelman, chief executive of Redfin, a real estate brokerage firm. “Eighteen months ago, the city was the only place where people were still buying homes.”
Christian Punsal, a 24-year-old city employee in Elk Grove, Calif., near Sacramento, is among the first-time homeowners and investors swooping in.
Mr. Punsal bought a three-bedroom home for $193,000. On a monthly basis, the house will cost him $100 less than the rent on his two-bedroom apartment. The home sold for $336,000 four years ago, when he was a junior in college.
“I just felt that this would be the perfect time to buy,” he said.
Others like him are wading into the California market. In January, home sales in the state jumped by 54 percent from January 2008. But about 60 percent of the previously owned homes sold had recently been in foreclosure, according to DataQuick, a publisher of real estate information.
Carlos Kozlowski, a real estate agent with Coldwell Banker in Sacramento, said virtually every home he sold recently, including the one Mr. Punsal bought, was owned by the bank or a “short sale,” in which the price was less than the property’s mortgage.
Prices are down as much as 50 percent from a few years ago, and many properties are getting multiple bids, he said.
Still, home sales fell nationally in January, reflecting a sharp drop in the Northeast, which, with parts of the Northwest and South, has lagged the real estate downturn in the Southwest.
In Manhattan, for instance, sales of condominiums and co-operative apartments fell 52 percent in January, according to Miller Samuel, an appraisal firm.
The market has been hammered by layoffs on Wall Street, tighter lending standards and a glut of new buildings, said Jonathan J. Miller, chief executive of the firm.
“The leverage is being squeezed out of the economy.”
New York is not alone. Real estate sales have also slumped in cities like San Francisco and Seattle, which previously seemed impervious. California’s recent experience might offer one roadmap of how the housing slump will play out in other places. But the process will be painful and slow.
So April, when buying traditionally picks up, could be the cruelest month yet for the housing market.
“You are really looking at a very, very ugly outlook,” said Ivy Zelman, chief executive of Zelman & Associates, a housing research firm.
In recent months, many banks and mortgage companies have suspended foreclosures voluntarily or because of state moratoriums meant to encourage negotiations between delinquent borrowers and lenders. Experience, however, shows that these suspensions merely delay foreclosures, and that foreclosed homes soon flood the market.
Another big concern is that homeowners with solid credit records will fall behind on their mortgages in greater numbers as unemployment rises.
So for now, the American dream of homeownership is a dream deferred for many people. Growth in the number of households — defined as families or unrelated people living together — slowed last year, to 1.1 million, from an average of 1.4 million a year from 2000 to 2006, according to George Masnick, a researcher at the Joint Center for Housing Studies at Harvard University. Economists say the growth rate will likely fall further in 2009.
Many of the vacant homes are concentrated in far-flung suburbs in the Southwest and in Florida, which means that prices there may not return to their highs for many years. It also suggests that much of the country does not have as large an oversupply of homes.
But for now even areas that did not see a boom in construction and home prices in recent years are suffering. Brad Hunter, chief economist at Metrostudy, a housing research firm, cited North Carolina as an example. From 2000 to 2006, home prices in Charlotte climbed only an average of 3.7 percent a year; but last year prices fell 7.2 percent.
One of his colleagues who works in the state told Mr. Hunter, “We got the hangover but we never had the party.”
Troubled housing markets do not rebound quickly. The first thing to turn up are sales of homes as banks and individuals acknowledge that prices are no longer what they were; some of that is already happening in California and Florida.
Home prices tend to lag sales by a couple of years. That is what happened in Massachusetts and California in the early 1990s.
How long will the current slump last?
A futures market for home prices provides one sobering forecast. Trading in contracts that track home prices in 25 metropolitan areas suggests that home prices will fall about 15 percent this year and hit bottom in 2010, according to Radar Logic, a firm that created the index on which the trading is based. The market is also predicting that the Los Angeles area is closer to the bottom than New York.
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