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Tuesday, July 25, 2006

Existing Home Sales Out For June

I'm only following this so closely because I have developed a mesmerized fascination with the rhetoric surrounding a rapidly declining market. The NAR Existing Home Sales release for June is here (pdf). US months of supply are now at 6.8 months (May supply was revised to 6.4). US year-over-year price appreciation is at 0.9%, well below inflation. US total sales of existing homes are down 8.9% compared to a year ago. These are the seasonally adjusted figures.

By region:
Northeast - 7.2% gain over the last year, and compared to June, 2005, sales are only down 9.8%.
Midwest - 1.7% loss over the last year, and compared to June, 2005, sales are only down 6.2%.
South - 0.5% loss over the last year, and compared to June, 2005, sales are only down 5.5%.
West - 0.0% no change over the last year, and compared to last year sales are down 17.1%.

Next month the west should go negative. One hates to think what it will look like later in the year. The problem with funny-money loans is that when the market turns and heads down, they go bad. On the way down the medians are overstated on the high side. For one thing, these numbers don't show various sales incentives but only the contract sales price. With many sellers contributing cash to pay the buyer's closing costs, for example, the contract sales price overstates the real sales price the buyer pays. Also, as always, the existing home sales indicator is a lagging indicator, reflecting the market conditions of a couple of months ago.

Condos are worse. You can see the breakout between detached and condos here (pdf). Single family prices were up 1.1% compared to June, 2005. Condo prices were down 2.1%. Nationally, condo inventory has risen to 8 months of supply compared to 6.6 months of supply for single family, and I think there is something wrong with that split - condo inventory should be higher than that, unless this figure represents a sudden and substantial conversion of condominium developments to apartment buildings.

The regional breakout for condos can be found here (pdf). The telling statistic is that condo sales in the west are down 20.5% compared to June, 2005, and median sales price in the west went down 10.8% compared to last June. It's a nightmare, an absolute nightmare.

But on to the good part- the press release! Watching the change in NARRISH rhetoric has its grim fascinations:
Existing-home sales were down modestly in June, and home prices were up slightly from a year ago, according to the National Association of Realtors®.
...
David Lereah, NAR’s chief economist, said the housing market is flattening-out. “Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing,” he said. “At the same time, sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago.”
(But, as always at NAR):
NAR President Thomas M. Stevens from Vienna, Va., said opportunities have opened for home buyers. “People who were discouraged by the bidding wars that were so common over the last few years are finding more choices now,” said Stevens, senior vice president of NRT Inc. “Relative to the five-year housing boom, this year is a buyer’s market in much of the country with plentiful supply, along with interest rates which remain historically favorable, so it’s a good time to buy a home.
Especially the 20 houses or so your realTOR is unloading, which are priced to sell! Just wait till the banks are unloading REO. This is going to be ugly.

Comments:
Nationally, condo inventory has risen to 8 months of supply compared to 6.6 months of supply for single family, and I think there is something wrong with that split - condo inventory should be higher than that, unless this figure represents a sudden and substantial conversion of condominium developments to apartment buildings.

Or they're building new condos at the expense of single-family. That seems to be the case here in Anaheim, CA -- almost a square mile around Anaheim Stadium has all been bulldozed to bare dirt and sports construction fences announcing CONDOS! CONDOS! CONDOS!

According to a real estate bubble blog from Florida, "flippers" (short-term speculators) buy blocks of dozens of condos BEFORE construction, intending to "flip" them immediately afterwards when prices have gone UP UP UP. (It's kind of like ticket-scalping on a larger scale.)

I currently live in a condo (two-story row-house type); it was all I could afford back in '97 (the bottom of the last crash). There are a lot like me who couldn't afford real houses.

(And "detached single-family" these days means a McMansion with five-foot side yards, a ten-foot-deep back yard, and homeowners' association micromanaging your life, just like a condo. So what's the diff, except that the units are *not* connected into a row-house arrangment?)

The Headless Unicorn Guy
 
They're building tons of condos, alright, but they aren't selling them fast. The condo months of supply should be longer than it is - unless at least a month's supply has been removed from market by delisting, reconverting to apartments, and simply cancelling construction.

There were actually trading markets in preconstruction condo contracts and options last year in FL. That's when I figured we were heading for a recession.

I know what you mean about single family. I was appalled to see these large houses built on postage-size lots. It's very close to apartment living, without the shared amenities.
 
There were actually trading markets in preconstruction condo contracts and options last year in FL. That's when I figured we were heading for a recession.

Sort of like "When futures take over the market, it's time to bail out"?

(In the 17th Century Tulip Bubble in Holland, they went to "tulip futures" for the next growing season (or two) just before the Tulip-bulb Market tanked. BAD.)

The Headless Unicorn Guy
 
Well - people were setting up in business by leveraging one or two properties they actually owned to get financing to buy and sell other real estate on margin.

When you figured in that the leveraged properties had doubled and in some cases tripled, it became clear that at least 20% of the buyers for these developments didn't really exist and that there was only promises of money behind many of these purchases; the underlying securitization simply wasn't there.

Those "buyers" had no intention of moving in or even closing on the property. Looking at the recent sales figures, I'd say it was more like 35% that didn't really exist. Sooner or later, a buyer was going to have to show up at closing. When they didn't....

Markets always return to a balance between sellers and buyers, and it was obvious that would involve a pretty monumental collapse in values. In some areas in FL now, houses are selling for 20-25% less than they did last year.
 
I don't know about the conern about large homes on small lots- that indicates the move from suburban style to urban style of living. The suburbs have become congested enough to merit that sort of building, but the market as a whole is definitely worrisome.

I keep track of how they word things and for the first time, reports are starting to mention "buyer's market".

I know my mom's house is just not seeing any interest from buyers, and she is in danger of trading away lots of her equity gains just to be able to move. At this point I am not sure how much difference a pause in the Fed's interest rate raises would work on the housing market.

Personally I find the whole thing confusing right now. Developers are still on a roll in central Ohio. But will it last?
 
Ilona, it's not the rates doing this. It's buyer's exhaustion, oversupply, demographics, and it is beginning to be a contracting credit market.

Ilona, it would be better to get out ASAP, which means pricing in the bottom 25% of the market. I am afraid that things really don't look good overall. Your other alternative is to rent the house, but that inevitably is costly.

With a recession pending your options are quite limited.
 
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