Is the housing market heading up or rolling over?

From the Hallmark Abstract Service website.

For anyone who relies on real estate for their livelihood or who owns commercial or residential real estate either as an investment or for shelter, we can only hope that the improvement in the market that we have witnessed is not only for real but that it will continue far into the future.

In an article at the Hallmark Abstract Service blog earlier today we provided statistics and a video that talked about how the vast number of mortgages underwater have been consistently get less vast, creeping into the light of day called positive equity (Negative equity in homes has gotten less negative! (Video)). That is a very good thing!

But, given conflicting housing data that has been released recently, is the party over and could the housing market be turning back down? Of course while nothing would make me and others in the real estate industry more unhappy than that, it’s important to provide both sides of the argument.

In an article written by Keith Jurow at dshort.com, he discusses how in his opinion housing markets are headed for a fall. It’s well worth the read and, if after absorbing it you either agree or disagree with his hypothesis, leave your thoughts in the comments section below.

‘Why Housing Markets Are Heading South … Again‘

In previous articles over the past two years, I have emphasized that a rising percentage of home buying has come from all-cash investors. I argued that this was not a sign of a housing recovery. Rather, it showed that the traditional housing market led by trade-up buyers purchasing with a mortgage was still on life support.

Evidence is now widespread that rising prices in last year’s hottest markets have caused investors to cut back their buying. In addition, the sharp rise in mortgage rates since FRB Chairman Bernanke’s QE tapering remarks last May has had a huge impact on traditional home buyers.

Online brokerage firm Redfin explained in an important February 18 report that sales across the 19 major markets it covers “hit the lowest point in at least four years, falling 9.9% year over year.”

For example, Las Vegas was one of the hottest markets last year with the median price-per-square-foot for existing detached homes up by 25%. However, sales started to weaken last fall as mortgage rates climbed. By November, sales volume fell to the lowest level for any November in the past five years. Sales of existing single-family homes in January of this year were down 7.3% from a year earlier. New home sales really tanked – 28% lower than January 2013.

Actually, home sales had started to weaken in August 2011 and have been trending downward since then. The pundits hardly noticed because they were completely focused on rising prices. Yet the volume of home sales is at least as important as median home prices.

According to DataQuick, home sales in January were actually bifurcated. Sales of houses under $200,000 were 28% lower than a year earlier. That is primarily due to the continued plunge in sales of foreclosed properties as well as short sales. However, sales of homes over $200,000 were 33% higher than January 2013.

Another interesting fact is that 27% of purchases were by people living outside of Nevada. Half of them were California buyers. Forty-seven per cent of all homes were sold to all-cash buyers, down from 53% a year earlier. Eleven per cent of all home purchases were to buyers who bought two or more properties. That was 20% fewer than in January 2013.

In Southern California, DataQuick reported that total January sales were the weakest in three years and down 10% from a year earlier. After the bubble peak of seven years ago, average sales in January have never exceeded the average number of sales recorded since 1988. Sales in January 2014 were 17% below that 25-year average.

Similar to Las Vegas, southern California was a tale of two markets. Because of the plunge in foreclosure sales and short sales, purchases of properties under $300,000 fell by 37%. Those which sold for more than $500,000 soared by 26%. The growth in the sale of expensive homes was greatly aided by a loosening of underwriting standards for jumbo mortgages.

Nearly 30% of all sales were purchased with cash. That was down from the record 37% in February 2013. So-called “absentee” buyers – almost entirely investors – accounted for 27% of all sales. This was much lower than the record 32% of a year earlier. Both of these statistics still pointed to a housing market that was anything but normal.

Redfin’s Latest Question: Where is Everyone?
The report issued by Redfin on February 18 was extremely revealing. Remember, they are an online brokerage firm operating in 19 major housing markets. The title of the report showed their puzzlement: “2014 Housing Market: Where is Everyone?”

It starts by pointing out that both buyers and sellers “seem to have gone missing.” Demand has softened, though one Redfin agent in Washington D.C. called the downturn uneven. As he described it, “the undesirable properties that would have sold in a few months last year aren’t selling at all. The biggest change is in between, with the sort-of-desirable homes. Last year, these homes got multiple offers and sold quickly. Now, they are getting only one offer during the first week, sometimes having to reduce their price, and the home is taking three to six weeks to sell.”

I pointed out in more than one article last year that listings had plummeted because potential home sellers were keeping their homes off the market. Why? They saw rising prices and thought that they could get a better price by waiting.

That is now confirmed by a Redfin agent in northern Virginia: “Home sellers are in no rush this year. They feel confident that their home will sell easily and at a higher price between March and May, so they see little incentive to list before then.”

In the report, the CEO of a national firm which provides real estate photography services said that demand for their services is strong. As he put it: “Early demand feels like a tsunami warning. In January, our business was up 15% compared to last year. We are ramping up in all markets because we are anticipating a huge spring for new listings.”

With regard to the media focus on the awful weather and its impact on the economy, the Redfin report pointed out that the bad weather discouraged home sellers, not buyers. Listings in January fell the most in those six cities — Boston, Philadelphia, Chicago, Washington D.C., Long Island and Baltimore – which were hardest hit by the frigid cold...

Read the rest of the article at the Hallmark Abstract Service blog here.