Where’s the safest place to build?  One way to answer the question is to look at how many distressed properties are selling in a particular area compared to the number of new homes.  This is not because the demographics of distressed property buyers and new home buyers are necessarily similar, they aren’t, but rather the health of the market that this ratio implies.  Distressed sales create havoc with home values, and make it hard for builders to hold the line on prices.  So naturally, areas with a relatively small share of distressed closings make for an attractive new home building environment.  In our data feature this week, courtesy of Housing IntelligencePro, we looked at MSAs with at least 500 new home closings in 2011 and compared that volume to the number of distressed property closings in the same period.  By a wide margin the leader was the active-adult mecca of The Villages in Florida, with an impressive ratio of 18 new home closings per REO closing.  Also impressive is that four of the top seven areas were all in North Carolina.  To see a sample report of data in your area, click here or on the Data Feature graphic to the right.

Do you trust your data sources?   With so many different sets of data out there, it can be tough to know which one to use.  A couple weeks ago, the National Association of Realtors (NAR) announced that they would be making substantial revisions to their existing home sales data going back to 2007, and noted that they had overstated the volume of sales during recent years due to a number of factors.  In their defense, the Realtors have a tough job: they rely on data from their various member multiple listing services (MLS) and then have to estimate the number of transactions that occurred outside of MLS or outside of the coverage area.   Here at Hanley Wood we are fortunate to have Housing IntelligencePro, which, instead of relying on MLS or estimates, calculates activity based upon actual closing records from each municipality.  Based on this data of real transactions, we had always thought the NAR numbers were a little elevated.  Prior to the revision, they had estimated existing home sales fell a total of 31% between 2005 and 2010.  Meanwhile our figures from Housing IntelligencePro indicated that during the same time frame, resales fell by over 45%.  Post revision, NAR’s numbers have moved much closer to ours and reflect a 41% decline.  Going forward, we’re glad we don’t have the same task of estimation and guesswork that those without complete data are faced with.  As the song goes, “Ain’t Nothing Like the Real Thing.”

Despite record low mortgage rates, 2011 has seen a surprisingly high level of cash home purchases.  Between tight lending standards and a desperate search for yield by investors, cash purchase of homes (especially distressed properties) became even more common in 2011 than last year.  According to data from Housing IntelligencePro, 38% of homes purchased in 2011 were bought with all cash.  That’s up from 34% in 2010, and double the 19% rate in 2006.  The trend is likely to continue in the near term, with investors being responsible for an increasing share of home purchases as prior home owners abandon the ownership market and head back to rentals.

“Investor” used to be a dirty word back during the housing boom when short-term flippers pumped up the demand for all types of homes, including new construction.  The downside to flipper investors was their short term horizon and their propensity to avoid options and upgrades and instead go for the cheapest homes available.  Additionally, even today many argue that investment activity is bound to re-enter the market at some point, so the perception is that investment activity is not good.  But for housing overall, the investor share of all purchases was actually higher in 2011 than in 2005, and we can be thankful for that as it is serving to clear much of the distress and oversupply of existing housing.

According to data from Housing IntelligencePro, the El Paso, TX MSA leads all markets in terms of year-over-year gain in new home closings for metropolitan areas with at least 300 new closings in the third quarter.  With 43% more new closings in the third quarter of 2011 compared to a year earlier, El Paso was easily in first, followed by Boise City-Nampa, ID with a gain of 35% and is the only market in the top 5 not in the South.  Cape Coral FL, Charleston SC, and Nashville TN round out the top 5, although all of these areas saw fewer than 1,000 new home in the third quarter.  Houston-Sugar Land-Baytown, TX is number six, and the top large market with more than 4,700 new home closings in the third quarter, a gain of 19% over the prior year.  Nationwide, new home closings in the third quarter were off by 6% from a year earlier.