Real Estate Market

Bright spots in Beige Book

by Broderick Perkins

(3/8/2012) ERATE Exclusive - Joining a growing number of favorable housing market reports, the federal boots-on-the-ground update reports still-soft home prices but increases in real estate activity in virtually every federal banking district.

"Residential real estate activity increased modestly in most Districts," according to the Federal Reserve's "Beige Book" for Feb 29.

Rather than a statistical analysis of the economy, including the real estate sector, the book is a unique report based on anecdotal information gathered on or before February 17 from district bank and branch directors of the 12 Federal Reserve Bank Districts and from key business contacts, economists, market experts and others.

Overview, by the Book

Generally, home prices declined or held steady in many areas, but the outlook for home sales and home sales growth was optimistic - a big change from the last time we looked at the Book

Contacts in the districts of Boston, Cleveland, Richmond, Atlanta, Kansas City, and Dallas reported growth in home sales and Philadelphia reported strong residential real estate activity.

On the other hand, New York noted steady to slightly softer home sales. Sales declined in St. Louis and San Francisco noted that home demand persisted at low levels.

Cleveland and Atlanta reported little movement in home prices, while contacts in Boston, New York, Philadelphia, Richmond, Chicago, and Kansas City reported declines.

Here some snapshots of sales and price conditions around the nation, largely improvements over the fall's rendition of the Beige Book.

The Book on home sales

Where home sales growth existed, Beige Book contacts were optimistic because the numbers more accurately reflect sales than in previous reports when year-over-year increases were distorted by the mid-2010 home buyers tax credit expiration. That was especially true in New England.

In the Richmond district, which includes Washington, D.C., traditional sales were buoyed by buyers reluctance to buy foreclosed and short sale homes because of the long, six to eight month delay in closing.

In most of the district's areas, low-end priced homes were doing better than more expensive properties and that was pushing inventories down and helping stabilize prices.

In the Dallas district, sales of existing homes increased moderately and new home sales were flat to slightly up with sale activity helped by unusually favorable weather and record low interest rates. Texas markets also outperformed the U.S. average in apartment leasing activity as investor interest in multifamily properties continued to increase.

The Kansas City district also enjoyed a pick up in sales of low- to mid-priced homes, so much so, contacts expect the sales pace to stabilize prices by the spring.

Book bearish on home prices

The Atlanta district, which includes Florida, was mixed. Most of the district's contacts reported "accelerated" home sales in January and early February, above levels from the same time period last year. However, while Florida brokers said inventory levels were declining, home prices were stuck at last year's levels.

New home prices and sales in the district remained depressed even with lowered inventories. Multi-family construction was robust as contacts expect new home sales and construction to be flat to slightly up compared with a year earlier.

In the Chicago district, multi-family construction continued as an area of strength as single-family construction and prices remained weak. Home builders said steady prices are necessary to improve prospects for housing starts.

The current Beige Book missed (by error or by timing) some of the positive notes from the San Francisco Bay Area were the latest reports say January sales were at the highest level in five years.

Both reports agree, prices were soft or down as the demand wasn't sufficient to boost prices. However, the book also includes the Seattle area and called the sales pace for new and existing homes "quite subdued," although scattered reports suggested modest improvement.

Inventories of available homes remained high in the district, helping keep prices down and construction demand low. Throughout the area, the demand for residential rental space remained high among some of the most costly in the nation.

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