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Fed’s Beige Book Sees Spotty Signs of a Housing Turnaround
Observing that economic decline has recently been moderating in some parts of the country with other areas stabilizing at a low level, the Federal Reserve Board’s Beige Book last week reported that residential real estate remained soft just about everywhere, although there have been signs of improvement.
The findings were based on anecdotal information received in comments from businesses and other contacts for the Fed’s 12 districts from roughly June 10, when the last Beige Book report was filed, up to July 20.
Where they were occurring, improvements in homes sales tended to be at the low end of the market, where first-time buyers were taking advantage of falling prices and low mortgage interest rates.
Contacts in the New York, Kansas City and Dallas districts attributed the relative strength of the entry-level home market, at least in part, to the first-time home buyer tax credit.
As for lending for business, consumers and residential real estate, Philadelphia was the sole district where an increase was seen since the prior report, although it was only “slight.”
Banks continued to tighten their credit standards in the Fed’s New York, Philadelphia, Richmond, Va., Chicago, Kansas City, Dallas and San Francisco districts, according to the report.
Following are the latest reports by district on residential real estate conditions compiled over the past several weeks:
- Boston. The housing market remained sluggish in New England into June, although there have been some positive signs. In June, Boston area home sales were down only 5% on a year-over-year basis, and sales were flat in New Hampshire from a year earlier. Condo sales remained far below 2008 levels in Massachusetts, Rhode Island and Connecticut.
Median home prices fell about 12% year-over-year for most of the states in the region, but dropped 25% in Rhode Island in May. In the greater Boston area, however, prices were down only 2% in June from the same month a year earlier.
Distressed properties continued to account for a much larger share of the homes being sold in the region this year than last, especially in Rhode Island, with a negative impact on prices. However, the inventory continued to decline in some areas, reducing excess supply. Several contacts complained about the Home Valuation Code of Conduct, which they said was resulting in under-appraisals by appraisal management companies that lack sufficient experience in local housing markets.
- New York. The region’s housing markets remained generally weak, although there were signs of stabilization in a number of areas. Contacts in northern New Jersey indicated that the market had a somewhat more positive tone than in recent months — prices, though still down about 15% over the year, appear to have stabilized and volume has picked up moderately. With the exception of some new multifamily construction along the Hudson waterfront, new construction activity was described as moribund.
New construction in the Buffalo-Niagara Falls area picked up in June following a period of exceptional sluggishness in April and May. While the high end of the market has weakened some in this area, sales activity for homes priced at $150,000 and under was fairly brisk, with sellers receiving multiple bids, sometimes above the asking price. This strength was largely attributed to the $8,000 tax credit for first-time home buyers. Overall, home prices have held relatively steady in western New York.
The residential market in New York City has seen further signs of deterioration in both sales and rentals. In the second quarter, the median sales price for existing co-ops and condos in Manhattan reportedly fell 26% from a year earlier, while the number of sales transactions fell 50%. The inventory of units listed was up 9%, although there is reported to be a substantial inventory of “shadow” apartments — condo units that are unsold but not yet listed. Asking rents in the city have slackened further, declining 2% to 12% over the past year, and actual rents are off more than 17% on a per-square-foot basis. Landlords were increasingly offering concessions — such as free rent for one or more months — in slow neighborhoods.
- Philadelphia. While residential real estate in June and July remained well below the level of a year ago, a noticeable pickup from earlier months of this year was reported. According to real estate agents, that increase is partly seasonal and partly the effect of “pent-up demand” rebounding from the very low sales pace over the past winter. Real estate agents generally indicated that the improvement in sales has been mainly for relatively low-priced houses, noting that a wider upturn in sales will depend on significant improvement in consumer confidence and employment. Reports indicated that price declines appeared to be easing, although in some parts of the district prices continued to drop substantially compared with a year earlier.
- Cleveland. Most builders continued to experience a slight increase in sales, but they were less optimistic about the outlook than in the second quarter. Foot and Internet traffic were characterized as stable or declining, and sales were expected to remain at current levels or fall off slightly through the year’s end. Builders reported that a housing recovery was being impeded by financing difficulties for contractors and home buyers, low appraisal values and the limitation of tax credits to first-time home buyers. Discounting has been significantly reduced. There were widespread reports of increased prices for lumber, shingles and concrete, attributable to seasonal factors. General contractors continued to operate with skeleton crews, and subcontractors were readily available at highly competitive prices.
- Richmond, Va. Reports on housing activity were mixed across the district. In Fairfax, Va., a Realtor® reported that the heart of the market was “hot,” with houses priced in the $400,000 to $1.2 million range selling the fastest. Similarly, contacts in the Washington, D.C. area reported sales increases over last year, fueled by sales of properties under $1 million.
A Realtor® in Greenville, S.C., said that June had been his “best month” and that houses in the low- to middle-price range remained the best sellers. On a less positive note, Realtors® in Richmond and in Greensboro and Asheville, N.C., reported more sluggish home sales. The Realtor® in Richmond called sales “way off the mark” and the contact in Asheville observed that his area was “buckling down and weathering the storm.” House prices either held steady or declined across much of the district.
- Atlanta. Most home builders and Realtors® in the district indicated that the pace of the decline in home sales continued to moderate. Most Florida contacts said they saw improvements in sales, particularly for existing homes, although partly because of increased foreclosure sales. Foreclosures and short sales, they reported, were continuing to exert downward pressure on home prices. Both Realtors® and home builders noted some increased demand at the low-end of the housing market. New home construction remained at exceedingly low levels. Improving in recent months, expectations in June for activity over the next several months moderated following the end of the spring peak selling season.
- Chicago. Although residential construction was weak, particularly for apartments and condominiums, several contacts reported a bottoming out or small increase in new single-family home sales. The number of signed contracts was declining at a slower pace, with showroom traffic remaining slow but steady and cancellations declining. Many more foreclosed homes reached the stage of repossession and sale, putting downward pressure on home prices. Contacts in the mortgage industry reported a small increase in purchase applications.
- St. Louis. Home sales continued to decline throughout the district. Compared with the same period in 2008, year-to-date home sales in May were down 13% in St. Louis, 22% in Memphis, Tenn.; 32% in Little Rock, Ark.; and 35% in Louisville, Ky. Residential construction also continued to decline. Year-to-date single-family housing permits fell in nearly all of the metro areas in the district compared with the same period in 2008. Permits declined 30% in Little Rock, 37% in St. Louis, 44% in Louisville and 56% in Memphis.
- Minneapolis. June housing permits were down 25% from a year earlier in Minneapolis-St. Paul and 30% in Fargo, N.D. On the brighter side, sales were up 20% in the Minneapolis market, although the dollar value was flat and the median sales price was down 15%. Realtors® in West Montana reported steady sales for lower-priced homes, but slow sales for high-end properties.
- Kansas City. Residential real estate firms reported stronger sales volumes in June. Home inventory levels improved further in district states, with strong sales in the lower- and middle-price tiers of the market. Starter home sales remained strong due to the first-time home buyer tax credit and sales volumes improved for bank-owned and investor properties. Housing prices remained firm in Kansas and Oklahoma, while foreclosures weighed more heavily on the housing markets in Colorado and New Mexico. Home builders cited unfavorable borrowing terms, mounting foreclosures and a slower-than-expected inventory adjustment as the major obstacles to a rebound in construction.
- Dallas. Home sales continued to improve in the lower-priced, entry-level market as buyers moved to take advantage of the first-time home buyer tax credit before it expires at the end of November. Despite that pickup, overall sales were well below year-ago levels and contacts said sales were continuing to decline in higher-priced segments of the market. While sales prices were slightly below year-earlier levels, they were holding up well compared to most other parts of the country. Residential construction activity remained at very low levels, but some contacts expected to see a pickup in entry-level housing starts in the near term.
- San Francisco. Conditions were extremely weak throughout the district, but there were some signs of improvement. There was “a sustainable pickup in the pace of home sales in many areas” as the result of further declines in sales prices and low mortgage rates. Home construction remained at a notably low level.
The Beige Book is published eight times a year. Upcoming reports are scheduled for Sept. 9, Oct. 21 and Dec. 8.
 Tax Credit Web Site Looks at Opportunity of a Lifetime
Builders and other industry professionals can help spur home sales by referring prospective first-time home buyers to www.federalhousingtaxcredit.com. The NAHB Web site provides detailed information on the $8,000 federal tax credit for first-time home buyers included in the economic stimulus legislation signed into law by President Obama.
Consumers can use the Web site to find information on the tax credit — including a detailed question and answer section. It also includes information about other housing-related and small business measures in the legislation and a number of home-buying resources for consumers.
Spanish Version Also Available Online
A Spanish version of this increasingly popular Web site is also available to provide detailed information on the tax credit to Spanish-speaking first-time home buyers.
Industry professionals are encouraged to highlight either tax credit Web site when marketing to their potential first-time home buyer market.
 Want to Know the Housing Starts Through 2017?
Find out in HousingEconomics.com's Long-Term Forecast.
Subscribe and get downloadable Excel tables that feature the housing starts forecast, gross domestic product (GDP), demographics and more.
To learn more, visit www.housingeconomics.com.
 Plan to Attend Construction Forecast Conference
Plan to attend or watch the 2009 Fall NAHB Construction Forecast Conference & Webcast on Oct. 21 in Washington, D.C. to get the latest facts, insights and analysis of the housing industry.
Panels of nationally recognized experts at the day-long conference will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.
For more information and to register, visit www.nahb.org/cfc.
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