Wednesday, April 27, 2011

WELLS FARGO PREDICTS LONG ROAD TO HOUSING RECOVERY

New home sales rose 11.1% in March to a 300,000-unit annual pace. Previous months' data were upwardly revised by a net 32,000 units. Median and mean home prices both fell on a year ago-basis.


Sales of existing homes rose to a 5.1 million-unit pace in March, but distressed transactions accounted for 40% of overall sales. Investors accounted for 22% of sales and all-cash buyers rose to a record 35%. The increasing entrance of investors and all-cash buyers is a sign a bottom in home prices is near. Nevertheless, the Wells Fargo Economics Group says housing indicators clearly show that "being on the road to recovery is not the same as being in a recovery."

Wells Fargo expects home prices to continue to decline over the next six to eight months, eventually bringing the peak-to-trough decline in the median price and S&P/Case-Shiller Home Price Index to around 38%. New homes typically sell for about 12% above existing homes, but that premium is closer to 30% today, which is effectively relegating many builders to the sidelines. Unfortunately, the gap will likely remain until the pace of foreclosures moderates.

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