November ’11 Housing Numbers:

• New Home Sales ROSE 1.6%
• Inventory of Homes Available for Sale FELL by 1.3%
• New Home Prices FELL 2.5% Y/Y
• Existing Home Sales ROSE by 4.0%
• Inventory of Homes Available for Sale FELL by 5.8%
• Existing Home Prices FELL 3.5% Y/Y
• Housing Starts ROSE by 9.3%
• Single Family Starts ROSE by 2.3%
• Multifamily Starts ROSE by 25.9%

Wells Fargo’s Economics Group points out in a recent study that the recent uptrend in housing activity is not a “genuine” recovery in housing. They state that “the major obstacles that have troubled the housing marketing over the past few years still remain intact, including the oversupply of single-family homes and mounting distressed transactions.”

They cite that the upward trend is likely due to two factors:

1. The actual strength in a select few markets and;
2. Unseasonably warm weather during a normally slow time of year.

Regional Gains Boost Overall Activity
There has been a string of month-over-month gains in homebuilder sentiment. While they continue to face competition from steeply discounted transactions, activity is ramping up in the South. Builder confidence is up 10 points since September, with the South accounting for much of the overall index’s gains.

Seasonal Adjustment Factors
Seasonal adjustments are also at play. On an adjusted basis single-family starts rose 3.6 percent in October followed by 2.3 percent in November. Take out the seasonal adjustment and they fell 11.3 percent. Since starts are at near record lows, the activity resulted in a seasonally adjusted rise. The same is true of permits, construction spending and sales.

Other Factors:

• Now we are facing the winter weather cycle, the slow sales period;
• Foreclosures are on the increase;
• Appraisals will likely be soft as the shadow inventory works through the cycle

Wells Fargo’s Housing Market Outlook:

• Look for a modest rise in new home sales and single-family construction in 2012;
• Look for prices to hit a bottom mid-2012;
  However, a return to a “normal” housing market, with a balanced supply and demand where values are rising 2 percent to 3 percent is, unfortunately, years away.