Housing Data Wrap Up for 2011 - Better News Is Raising Hopes for the New Year

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December 30, 2011

E co n o m ic s Gr o u p

Better News Is Raising Hopes for the New YearMost of the economic reports dealing with housing have shown a little more strength recently.New home sales rose 1.6 percent in November and sales of existing homes climbed 4.0 percent.New home construction also improved, with housing starts rising 9.3 percent in November. Low mortgage rates, an improving job market, and some reported easing in mortgage underwritingstandards has raised hopes that the momentum will carry over into 2012. Demand does appear to

be firming a bit. Pending home sales jumped 7.3 percent in November, following an upwardly revised 10.4 percent rise the previous month. The National Association of Homebuilders/WellsFargo Housing Market Index has also risen, with more builders reporting gains in buyer traffic.

The news has not been universally positive. The latest S&P/Case-Shiller data shows price declinesaccelerating in October. The 20-city index fell 0.6 percent in October and has tumbled at a6.4 percent pace over the past three months. Home prices are down 3.4 percent over the past

year. Moreover, price declines have been fairly widespread, with 16 of the 20 markets surveyedreporting price declines in October. The sharp drop in home prices over the past three monthsshould raise some caution flags for those expecting dramatic gains in 2012. Housing still faces along and arduous road to recovery. That said, 2012 will be a better year. We have slightly increased our forecast for the next two years, which marks the first time we have raised ourexpectations for housing in any significant way in well over a year.

While it is nice to see the improved numbers, we continue to stress that these reports should betreated with caution. Some of the recent improvement in the reported data is due to unseasonably mild weather, which led to slightly more sales and new construction than would normally occur inthe seasonally slow fall months. The seasonal adjustment process greatly exaggerates these gains.The arrival of more typical weather in January or February would bring those figures back downfairly quickly and probably leave them close to their average levels for the past year or so.

Figure 1

Existing & New Single-Family Home SalesIn Millions, Seasonally Adjusted Annual Rate

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

New Home Sales: Nov @ 315 Thousand (Left Axis)

Existing Home Sales: Nov @ 4.0 Milli on (Right Axis)

Figure 2

Median New & Existing Home Sale PricesIn Thousands, Single-Family

$100

$150

$200

$250

$300

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

$100

$150

$200

$250

$300

Median New Sales Price: Nov @ $214,100

Median Existing Sales Price: Nov @ $164,100

Source: U.S. Department of Commerce, National Association of Realtors and Wells Fargo Securities, LLC

Special Commentary

Mark Vitner, Senior [email protected] ● (704) 383-5635

Anika R. Khan, [email protected] ● (704) 715-0575

Joe Seydl, Economic Analys [email protected] ● (704) 715-1488

Housing Data Wrap-Up: December 2011

mailto:[email protected]









Housing Data Wrap-Up: December 2011 WELLS FARGO SECURITIES, LLCDecember 30, 2011 ECONOMICS GROUP

Our more upbeat view on housing is based on better reports from builders, lenders and RealtorsBuilders have seen a modest uptick in buyer traffic in recent months. The NAHB/Wells FargoHomebuilders’ Index has risen for three consecutive months, marking the first three-month gainsince the middle of 2009. Realtors are also seeing some firming in demand and mortgageunderwriting standards have loosened a little bit. Gains in sales and new home construction have

been spotty, however, with builders in the South and Midwest seeing the greatest improvement.

The South itself is a real mixed bag, with energy economies like Houston and Oklahoma Cityseeing relatively strong gains while Atlanta and much of South Florida are still languishing. Mostof the region’s larger markets are seeing modest gains, including Charlotte, Orlando, NashvilleGreenville and Huntsville. Activity in the Washington D.C. area, which picked up ahead of mostother major areas, has cooled a bit. The Midwest is seeing modest gains across many of its mid-sized markets and most of the region’s larger markets have bottomed. The largest gains areoccurring in areas benefitting from the rebound in the automotive industry and manufacturing ingeneral. The energy boom in the Upper Midwest is also driving gains. Energy and the high-techsector are also the big drivers out West, with San Jose and Denver leading the way.

Activity continues to be skewed toward better locations, which tend to be clustered near keyemployment centers with long established amenities and infrastructure. Property prices in theseinfill areas sky-rocketed during the boom years, sending many would-be home buyers to the outer

suburbs. With lower property prices and reduced construction costs, buyers are returning to thesemarkets, even in hard hit areas like Tampa and Phoenix. There has been much less recovery indevelopments in the outer suburbs. Many of these projects were started during the latter part ofthe housing boom and are further out from key employment centers and retail centers. This isreally evident in sprawling markets like Atlanta, where prices in the distant suburbs continue totumble and foreclosures and negative equity remain significant hurdles to recovery.

Even with continued worries about competition from foreclosure sales, we expect single-familyconstruction to rise 7 percent in 2012. Sales of new homes should rise nearly 15 percent. Strongdemand for apartments should help boost multi-family starts by at least 25 percent in 2012Overall starts should rise to 690,000 units, which would be the best year since 2008.

While we have raised our forecast for home sales and new home construction slightly, the sameold hurdles remain in place. There is still a significant oversupply of homes in place, even thoughthe inventory of existing homes recently fell to 2.58-million units in November, which is thelowest they have been since May 2005. New home inventories remain at a 49-year low. We

believe you can add another 2 million units of shadow inventory to this total, consisting of homesin foreclosure, bank-owned properties and some percentage of homes with mortgages that areseriously delinquent and likely to go through the foreclosure process, most of which is located in ahandful of long-troubled markets. The unknown number of homes in shadow inventory willcontinue to weigh on the housing market by encouraging appraisers to be overly conservative and

by keeping mortgage underwriting tighter than it would be otherwise.

Recent Housing Data

Release Consensus Actual Prior Revised Next Release

NAHB Sentiment Index December 20 21 20 19 Jan-18

Housing Starts, Thousands of Units November 635K 685K 628K 627K Jan-19

Housing Permits November 635K 681K 653K 644K Jan-19

Existing Home Sales, Millions of Homes November 5.05M 4.42M 4.97M 4.25M Jan-20

Percent Change November 2.2% 4.0% 1.4% n/ a Jan-20

New Home Sales, Thousands of Units November 315K 315K 307K 310K Jan-26

Percent Change November 2.6% 1.6% 1.3% 1.3% Jan-26

S&P Case/ Shiller Composite-20 October -3.20% -3.40% -3.59% -3.54% Jan-31

Source: S&P, NAHB, National Associat ion of Realtors , U.S. Dept. of Commerce and Wells Fargo Securit ies, LLC

2




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5

New Home SalesInventory of New Homes for Sale

Non-Seasonally Adjusted, In Thousands

0

150

300

450

600

89 91 93 95 97 99 01 03 05 07 09 11

0

150

300

450

600

Inventory: Nov @ 158,000

Completed New Homes: Nov @ 59,000

New Home SalesSeasonally Adjusted Annual Rate, In Thousands

100

300

500

700

900

1,100

1,300

1,500

89 91 93 95 97 99 01 03 05 07 09 11

100

300

500

700

900

1,100

1,300

1,500

New Home Sales: Nov @ 315,000

3-Month Moving Average: Nov @ 310,333

Months' Supply of New Homes

Seasonally Adjusted

2

4

6

8

10

12

14

90 92 94 96 98 00 02 04 06 08 10

2

4

6

8

10

12

14

Months' Supply: Nov @ 6.0

Average and Median New Home Sale PriceIn Thousands

$100

$150

$200

$250

$300

$350

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

$100

$150

$200

$250

$300

$350

Average Sales Price: Nov @ $242,900


Inventory of New Homes for Sale

New Homes for Sale at End of Month, 2002=100

20

40

60

80

100

120

140

160

180

200

220

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

20

40

60

80

100

120

140

160

180

200

220

Northeast: Nov @ 70.4

Midwest: Nov @ 31.0

South: Nov @ 57.9

West: Nov @ 48.6

Median New Home Sales Price

-15%

-10%

-5%

0%

5%

10%

15%

20%

89 91 93 95 97 99 01 03 05 07 09 11

-15%

-10%

-5%

0%

5%

10%

15%

20%


Year-over-Year Percent Change: Nov @ -2.5%

Source: U.S. Department of Commerceand Wells Fargo Securities, LLC




Existing Home SalesInventory of Existing Homes for Sale

Existing Homes for Sale at End of Month - In Thousands

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1999 2001 2003 2005 2007 2009 2011

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Total Inventory: Nov @ 2,580

Existing Home ResalesSeasonally Adjusted Annual Rate - In Millions

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

1999 2001 2003 2005 2007 2009 2011

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Existing Home Sales: Nov @ 4.42 Million

Single-Family Home vs. Condo Prices

In Thousands

$50

$100

$150

$200

$250

$300

99 00 01 02 03 04 05 06 07 08 09 10 11

$50

$100

$150

$200

$250

$300

Average Single-Family Price: Nov @ $210,800

Average Condo Price: Nov @ $208,100

Existing Single-Family Home ResalesSeasonally Adjusted Annual Rate - In Millions

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

99 01 03 05 07 09 11

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Existing Home Sales: Nov @ 4.0 Million

Pending Home Sales Index

Year-over-Year Percent Change

-30%

-20%

-10%

0%

10%

20%

30%

40%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

-30%

-20%

-10%

0%

10%

20%

30%

40%

Year-over-Year Change: Nov @ 5.9%

Existing Condominium ResalesSeasonally Adjusted Annual Rate - In Thousands

300

400

500

600

700

800

900

1,000

99 00 01 02 03 04 05 06 07 08 09 10 11

300

400

500

600

700

800

900

1,000

Condo Sales: Nov @ 470,000

Source: National Association of Realtorsand Wells Fargo Securities, LLC

6



Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research& Economics

(704) 715-8437(212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 [email protected]

Mark Vitner Senior Economist (704) 383-5635 [email protected]

Jay Bryson, Ph.D. Global Economist (704) 383-3518 [email protected]

Scott Anderson, Ph.D. Senior Economist (612) 667-9281 [email protected]

Eugenio Aleman, Ph.D. Senior Economist (704) 715-0314 [email protected]

Sam Bullard Senior Economist (704) 383-7372 [email protected]

Anika Khan Economist (704) 715-0575 [email protected]

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economist (704) 374-4407 [email protected]

Michael A. Brown Economist (704) 715-0569 [email protected]

Joe Seydl Economic Analyst (704) 715-1488 [email protected]

Sarah Watt Economic Analyst (704) 374-7142 [email protected]

Kaylyn Swankoski Economic Analyst (704) 715-0526 [email protected]

Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealerregistered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and theSecurities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and throughsubsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC,

Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan)Co. Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLCdoes not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information andopinions are subject to change without notice, are for general information only and are not intended as an offer orsolicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells FargoSecurities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of WellsFargo & Company © 2011 Wells Fargo Securities, LLC.

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Housing Data Wrap Up for 2011 - Better News Is Raising Hopes for the New Year