This is a HUGE subject and I probably can’t do it justice in one blog entry. But here goes.

• The new home sales numbers seem to confirm what the single-family housing starts and permits numbers imply — that the market for new single-family homes is flattening — indeed, that it may have hit bottom in January — and that the recovery will be a slow one. Despite improving numbers, we are not ready to say that the market has hit bottom. These numbers are estimates with large standard deviations. Because the margin of errors is big, the footnote in the press release warns, “It takes four months to establish a trend for new homes sold.” We still project that this market will start expanding in the second half of this year. –Patrick Newport, IHS Global Insight

• As opposed to the resale volumes, which increased by 2.9% month-to-month in April, new home sales remain sluggish. Plunging prices, record-low mortgage rates and an $8000 tax credit for first time buyers did not help much to push up hew housing demand. We believe, new home sales is probably a better reflection of the underlying demand than the existing home sales which have been highly boosted by the increasing foreclosure numbers recently. Nevertheless, new home inventories kept declining in April which sent the months’ supply in new homes to 2.3 month below a record of 12.4 months reached in January. In addition, the home prices kept falling and were 14.9% below last April’s levels. Even though we see builders are becoming more optimistic about the future of the housing industry and there is some stabilization in housing demand, surging foreclosures, rising mortgage rates and high unemployment rates will weigh heavily on new home sales and will prevent a sharp rebound in the housing market in the near future. –Yelena Shulyatyeva, BNP Paribas

• New homes are now sitting on the market for a median 10.9 months before selling, and completed homes still comprise an extraordinarily high share of total homes for sale. While sales have stabilized within a fairly narrow range over recent months, there is little to suggest that the sales rate will post a meaningful and sustained increase any time soon. Despite the Fed’s efforts, mortgage rates are heading higher, while the ongoing erosion in the labor market and tougher mortgage lending standards will continue to act as drags on sales. It is true that the first-time buyer tax credit is stimulating sales, but this will not be sufficient to sustain a meaningful increase in new home sales. –Richard F. Moody, Forward Capital

• Even with some normalization of unsold inventory of newly constructed homes, it’s unlikely that the real estate market can support any significant pick-up in homebuilding activity in the foreseeable future. That’s because foreclosure activity is still increasing and these properties are flooding the market. –David Greenlaw, Morgan Stanley

• The report was a bit of a mixed bag, as the weaker than expected gains in new home sales will likely be offset by the improvement in the inventory data. –Millan L. B. Mulraine, TD Securities

• This is a bit disappointing, given the hefty increase in homebuilder sentiment in the past couple of months. The relatively late Easter might have restrained activity, we suppose, but we cannot be sure. Either way, we still think the combination of very low mortgage rates and falling inventory will entice people back into the market in greater numbers over the next few months. –Ian Shepherdson, High Frequency Economics

• Looking ahead, reports from homebuilders indicate that activity picked up in April and then a bit further in May, led by first-time homebuyers attracted by steep price declines at the bottom end of the market. The same appears to be true of existing homes, where first-timers are being tempted by deeply discounted properties coming out of foreclosure. Therefore, while sales rates may well have bottomed, it seems clear that gains in activity will remain concentrated in lower priced homes. However, supply will remain enormous, particularly with increased competition coming from distressed sales of existing homes. This suggests that prices will continue to edge lower at the bottom end of the market even as demand for these homes picks up a bit –Joshua Shapiro, MFR Inc.

• Although new single-family sales were a little below expectations in April, we judge the data to be consistent with a bottoming out in new housing construction activity as also suggested by single-family housing starts and permits and the NAHB’s housing market index. Perhaps the most constructive indicator is the decline in the number of homes for sale in April, both in absolute terms and in relation to sales (though the months’ supply remains elevated). The latest mortgage delinquency data for the first quarter remind us that there are still very significant problems in the housing market. –RDQ Economics

Here are a few charts that depict the current housing situation:
Lower prices and historically low borrowing costs have increased affordability. The average 30-year mortgage rate was 4.81% in April, down from 5.00% in March and 5.92% in April 2008, Freddie Mac data show.

The housing industry hopes demand is stirred by the $8,000 tax credit for first-time home buyers included in the Obama administration’s economic stimulus package. However, tighter mortgage lending standards and rising unemployment are working against sellers. The unemployment rate in April climbed to 8.9% from 8.5% during March.

Regionally la
st month, new-home sales were flat in the Midwest and the Northeast. Sales fell 3.8% in the West and climbed 1.9% in the South.The market is bedeviled, however, by foreclosures. Buyers are gobbling distressed property, priced cheaply, and passing up on new homes. This restrains construction, hurting builders as well as the kinds of commerce that feed off new subdivisions and might otherwise emerge — in the form of shopping malls, for instance.

Last Wednesday, the National Association of Realtors reported existing-home sales increased 2.9% to a 4.68 million annual rate. About 45% of the 4.68 million were foreclosures and short sales. The median home price dropped 15.4% to $170,200 from $201,300 in April 2008.

About half of the new foreclosures were in four states: California, Florida, Arizona and Nevada, according to the report. Measuring both old and new defaults, 11 percent of all mortgages in Florida were in foreclosure at the end of the first quarter, the highest in the U.S. In Nevada, it was 7.8 percent, in Arizona, it was 5.6 percent, and in California, it was 5.2 percent. New Jersey’s foreclosure inventory was 4.3 percent, New York was 3 percent, and Massachusetts was 2.8 percent.

It is important to note (once again) that the monthly data is statistical noise at 0.3% with a ±14.5% margin of error; the annual fall of 34% is statistically significant.

The usual headlines got it wrong:

• Bloomberg: New-Home Sales in U.S. Climbed 0.3%

• Marketwatch: Home sales up a paltry 0.3%

• Reuters: US new home sales rose 0.3 percent in April

• Associated Press: April new home sales inch upward

• WSJ: New-Home Sales Rise as Prices Tumble

The bottom line… we cannot accurately state (in a statistically significant manner) that home sales went up in April 2009. But, we do know confidently that sales fell (between 23% and 45%) year over year.

But the real question is…have we reached bottom yet in the housing market???

Maybe.

Today’s housing reports indicates that building permits in April 2009 decreased 3.3% from March and declined 50.2% from April 2008, to 494,000. Housing starts in March 2009 decreased 12.8% from the prior month and declined 54.2% from the prior year, to 458,000.

On the surface this appears to be more bad news. But there is a silver lining. Behind the headlines (interestingly, the same was the case with retail sales), the numbers didn’t look as terrible.

First, with record inventory why are people rooting for additional supply? Second, the large, and unexpected, decline in housing starts is driven solely by a huge drop in multi-family housing starts, which dropped 46.1% to only 90,000 at an annual rate. This looks like a payback for a large increase in February when multi-family starts rose 65.6%. In addition, single family starts rose 2.8% while permits rose 3.6%. This trend, if sustained in coming months, would suggest that single family housing starts are in the process of bottoming and we may be starting the long, slow recovery. As I have said before, regional variations do exist so be wary of painting with too broad a brush stroke.

According to data released today by Freddie Mac, 30-year mortgage rates fell this week to 4.80%, from 4.82% last week and 4.87% the previous week. Except for the 4.78% average during the first week of April, the 4.80% rate marks the lowest 30-year mortgage rate in history (see chart above), and is a full 4 percentage points below the 8.80% average rate since 1964. Along with falling home prices, the record-low mortgage rates are continuing to elevate housing affordability to record highs, which will help the real estate market in its recovery process this year.

There have been some glimmers of light in the darkening economic picture, including retail sales for January and February and sales of both new and existing homes in February. It’s clear that ongoing market adjustments in key sectors are essential to eventual economic recovery and expansion.

The policy blitz coming from the Administration, Congress, the Federal Reserve and foreign policymakers certainly are helping to move the train down the track toward the recovery tunnel — and the light at the other end should be in view soon.

This economic recovery pattern cannot materialize without near-term stabilization of the housing sector, and let’s hope recent policy initiatives to help housing turn that corner.

Housing pundits are forecasting a bottoming for home sales in the first quarter of this year, a bottom for total and single-family housing starts in the second quarter, and a bottom for the residential fixed investment component of GDP in the final quarter of 2009.

National average house prices should stabilize within a few quarters, and the majority of the decline may now be behind us.

Yesterday, Diane Swonk released her housing market forecast on a particularly encouraging note. Click here for more.

OK, I am on vacation but blogging counts as relaxation, right?

The National Association of Realtors (NAR) recently released its latest Housing Affordability Index (HAI), showing that housing affordability reached an all-time, historic record high of 166.8 in January (see chart above). A HAI of 166.8 would mean that the typical household earning the median family income of $59,821 in January would have 166.8% of the qualifying income to purchase a median-priced existing single-family house ($169,900) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971 (see chart below).

Since mid-2006, the HAI has risen by more than 67 points, from 99.6 in July 2006 to 168.8. Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $35,856, with monthly payments based on a 5.21%, 30-year fixed-rate mortgage ($747.19 per month for principal and interest). Given the median family income of about $59,821, the typical family would have 166.8% of the income required to qualify for the mortgage to purchase the $169,900 home.

The historic surge in housing affordability to a new record-high will play an important role in the real estate market’s recovery. Interestingly, the record-high level of housing affordability over the last several months has gone almost unreported by the media. The media seems trigger happy in its coverage of every possible bit of bad news about the real estate market and economy in general, but never covers some of the obvious, “mustard seed” signs of economic recovery, like record high housing affordability.

The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue– and as if the people facing foreclosures are the only people that matter.

What if the foreclosures are not stopped? Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices– prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from “creative” and risky financing (see chart above). It is amazing how fast people learn when they are not insulated from the consequences of their decisions.

~Thomas Sowell’s latest column “Subsidizing Bad Decisions”

Foreclosure filings dropped 9.6% from December, RealtyTrac reports, largely due to the combined mitigation efforts of banks and the government – but remain 18% higher than a year ago. In January, one in every 466 houses was the subject of a foreclosure filing. Yesterday, Foreclosures.com said completed foreclosures plunged by more than 25% in January from December, to 72,694 from 97,841. Preforeclosure filings – an indicator of future completed foreclosures – also fell 12%. “Efforts last year by government and industry to lay the groundwork for housing recovery finally are yielding the hoped-for slowdown in the foreclosure hemorrhage,” Foreclosure.com president Alexis McGee said.

From the WSJ: The good news is your home may be worth more than the rock-bottom price that your neighbors’ houses fetched. The bad news: No one but you might think so.

The one point of widespread agreement in the real-estate industry is that there is no single accurate index of home prices. They are all over the map, cover different sets of homes and may exclude parts of the country or be unduly influenced by the mix of homes sold in a given month.

No matter which index is correct, until a large inventory reduction takes place, housing prices will not stabilize. Click here for the Money Morning housing forecast for 2009.