Bank of American Real Estate Survey

by francine Hardaway on October 5, 2007

I participated in a real estate agent survey for Bank of America last month, and today I received the aggregated results. As it turns out, the survey was done for Bank of America Securities, so the recommendations have little to do with real estate and much to do with not buying stock in homebuilders. In September, over August, prices decreased 69%, time to sell increased 82%, and new builder incentives increased 69%. These cycles are the reason why, although I am an experienced Realtor, I don’t depend on selling and buying houses for my primary source of income. It’s much better for both me and my friends if I help them when I can, but don’t get tied up with people who don’t know me and how brutally honest I can be.

Here are the depressing numbers:
B of A’s traffic index fell to 14.7 in September from 18.6 in August and once again set a new low.
Here comes a hilarious sentence: The traffic index fell in 30 out of 40 markets but even the highest reading of 26.8 in the Philadelphia metro area remained far below agents’ expectations (measured
as 50). Of course. Agents are salespeople, believing their own salesmanship.

The greatest deterioration in traffic in September occurred in markets
where price declines are most significant (AZ/CA/DC/FL/NV) as buyers see no
harm in delaying their purchase. Again, of course. There’s an unlimited supply of homes in these markets.

Foreclosures and low appraisals are driving price declines. again, Duh. “Our price index fell to
17.1 in September, down from 21.2 in August (readings below 50 indicate
sequentially lower prices) as foreclosures added to the existing inventory glut.” In
many instances, agents said buyers were forced to lower prices due to appraisals
coming in below the contract price. Awesome. Appraisers have finally been scared into doing their jobs. The appraisals in 2005 were anything you wanted them to be.

We expect the price declines in the existing home market to particularly impact higher-end builders such as Toll Brothers. (Apologies to Bob Toll, with whom by brother and I went to college, but when you raise prices $20,000 a month on the same house, you need to come back to pricing based on land costs, replacement costs, and some correlation to wages).

B of A expects the price declines to continue based on the excess inventory of homes for sale (single
family existing home inventory reached 3.9 mln in August, at least 1.4 mln units
above a normal level) This is hilarious to me also. There are 1.4 million extra homes on the market. No wonder it takes a long time for a house to sell.

Oh, and then…

Fewer buyers qualify under tighter lending standards. Agents noted more
contracts falling out as lenders continued to tighten credit standards and require
more money down, even just prior to closing.

Want to know what the conclusion is by Bank of America Securities???

Sector View: We are Cautious on the homebuilders based on limited buyer traffic,
a lack of mortgage availability, and continued price erosion. On the positive side,
we see a 44% decline in new construction activity and the potential for lower rates,
which would help affordability.

If you are not in real estate or long on homebuilder stocks, this report is a real laugher.

{ 4 comments… read them below or add one }

Andy Kaufman October 5, 2007 at 12:55 pm

Thanks for sharing Francine.

Ah, the B of A surveys, I used to fill those out too. I haven’t gotten one in a while though.

For the most part, the market is pretty brutal…BUT transactions are still being done. Agents just need to recognize the shift, stay current and advise their clients truthfully.

I’m as busy as I’ve ever been.

francine hardaway October 5, 2007 at 1:06 pm

I think this is a good time for agents to get educated on the new technologies. I told that to Steven Groves this morning.

BASAIJA PAUL October 6, 2007 at 1:31 am

am only wondering how authentic those statistics are?

francine hardaway October 6, 2007 at 6:18 am

Statistics are never truly authentic. At best, they give you a rough idea of what’s going on. But it is wonderful to hear from you, Paul.

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