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Thursday, August 24, 2006

RE: Gruesome

Update: New Home Sales are out. The significant figure is that the NE reported a 42.6% drop in sales of new homes from July 2005 to July 2006. This is not reassuring. Not surprisingly, median sales prices continue to fall. End update.

I still don't have time to write fully about the July Existing Home Sales Release by NAR
. New home sales are due out today, so I will probably write about both tomorrow.

Still, I want to advite you to contemplate these sales numbers. They are the non-seasonally adjusted sales for all existing homes (that's condo and single-family):
Change by region from June to July:
National: -13.6%
Northeast: -7.5%
Midwest: -13.5%
South: -12.4%
West: -20.8%
These are very large month-by-month numbers, and would tend to indicate that July's numbers and median sales price will be revised downwards like June's. Non-seasonally adjusted numbers compare actual sales for one period to actual sales in another.

Looking at non-seasonally-adjusted year over year sales numbers, which compare July, 2006 to July, 2005:
National: -12.5%
Northeast: -13.3%
Midwest: -10.8%
South: -7.9%
West: -21.3%

Note the big drop in the NE. We already knew the West was toast. The coasts contain the largest population densities, and they are reflexive to some extent. Total months of supply for all existing homes is listed at 7.4 months. Existing homes reflect market conditions from several months ago. Under these conditions, do you really believe that the median home price increased from $229,000 in June (revised downward) to $230,000 in July? I don't.

More scary yet, look at the raw figures for actual reported existing home sales in July by region:
Northeast: 111,000
West: 141,000
South: 234,000
West: 118,000
The south is seeing most home sales, and the south is the only region to report a median price increase year over year. It looks as if both demographics (retirees or soon-to-be retirees fleeing higher tax areas and fuel costs) and the speculators are going south.

Now consider what this means for the nation's total housing equity. If the high cost coastal regions are declining (which is where the funny-money loans were concentrated), you have a much higher net loss in equity than one would think from a cursory look at these figures. You have an acute risk concentration. You will begin to see the results in lending practices very quickly, and it kind of puts the nail in the coffin for the first-time homebuyers who bought in the last three years in the west. Most of these people would refi within a few years, but how many of them will be able to do that now?

Once you have a solid year of flat prices, with many individual home owners reporting price slumps, it is no longer possible for lenders to pretend that it is not happening, and lenders start requiring higher downpayments. There are relatively high acquisition and sales costs for homes, so flat prices over a period mean a loss for the home sellers rather than stagnation. Since at least 40% of sales in the troubled area involve incentives (seller paid points or cash advances to closings), the median prices are overstated anyway.

There is absolutely no soft landing in these figures. We have passed tipover and seem to be heading for tumble, and it will come very quickly, and it will resolve very slowly in most areas of the country.

Chew on this, MOM:

Today, I noticed a price reduction in a new home of almost 6%- overnight.

That is, here in the South- where the landing has been the 'softest.' Further, the Ralegh 'Triangle' area has announced 2 new major employers coming to town, RBC and Fidelity, ech bring in well paid employees.

Home prices are still dropping are the commercvial market is doing well.

Go figure.
SC&A - when it's this widespread, it abruptly encroaches on healthy areas. The fundamentals in your area are strong, but most builders aren't truly local and may be desperately unloading for cash-flow purposes.

Also, you need to think about where those employees are coming from. They may suddenly take a loss on houses they are selling or be unable to sell them. It is the sales in the coastal areas that often provide funds for the purchases of these new houses in the less built-up areas. That and demographics is hurting the midwest.

It's an unfair fact of life which you will see borne out once again that when there is a real RE downturn, the areas that profited the least during the upturn tend to get hurt at least as much in the downturn as the areas that experienced a run up. This is why I have been so nervous in the last year, and I'm afraid it looks like the flood is coming and the dikes are incredibly weak.
Good points.

Used to be, buyers from elsewhere could score bog here, buying more house for less money.

Assuming of course, they were able to sell their homes.
Well, along with yours, there have been warnings for awhile. The Midwest is hurting... and probably will suffer some more setbacks. So much for the quoted "expert" who said our area was immune to the softening housing market. heh.

It might be more hope than anything else, but I think we are seeing a shaking out of the speculators, and that home values will stabilize and grow some after the storm. We'll see.

What I wonder is whether the Fed will slow down the interest rates, not just this once, but pace it out. It would help the short term.

My mother chose th eworst possible time to try and sell... I'm all doom and gloom because ( the story of my life) no one has or will listen to me. I wanted to relocate her two to three years ago.... both she and the housing market would have been healthier for it. Oh well :) nothing to be done now, but go forward.

I still think over the long run having a rental - if you have the right circumstances for managing it is probably a good financial investment. If things turn that way and everyone agrees( the herd of cats that is my family) maybe things will work for good in the whole situation anyway.

But for hte nation? It is belt tightening time. All the financial soothsayers of past years who warned to get out of doubt... their day has come, I think.

I appreciate the way you keep us all up on things like this and the bird flu news and commentary. The blogging world has a gem- if I can get back to writing more prductively I shall do my part to buff the links up a bit. You are one of the best, MOM!
get out of debt, debt! not doubt...but maybe that has Freudian complexities somewhere;) yeah, I'll blame it on Siggy.
Ilona - yes, two years ago would have been a much, much better time to sell! But I'd hold on if you can't sell at a decent price. In a couple of years you can probably work a rent to own deal or something like that.

It's the poor fools who bought in with these doom-filled loans at the top fifth of the peak that are going to get creamed. All too many of them were just starting out in life, and now they're underwater.

Mortgage interest rates have been dropping, not increasing. I think it's because of low demand. If the Fed dropped rates to 1% tomorrow it would change very little.
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