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Wednesday, October 25, 2006

RE: September Existing Home Sales

I have been staring at these figures for hours in shocked dismay. NAR can pontificate all it wants about "easing", "dipping" and "stabilizing", but what this shows is that this plane is losing altitude very, very fast. These are very negative reports you can get here. The word "dire" comes to mind; read on.

NAR is banging the drum on inventory, but months of supply are not dropping, which is the figure that matters. Furthermore, newly built homes coming on the market haven't stabilized yet, and won't for five or six months (and many of these are not listed on the MLS). Additionally, many cash-strapped sellers are trying FSBO and aren't using the MLS, and finally, NAR has been pushing hard to try to get sellers who aren't willing to negotiate to withdraw listings with the promise that it will all be better by spring. So sitting at 7.3 months of inventory nationally is not a "stabilization" - it's a reflection of an intractable reality, which is that we have a demand/supply imbalance not easily corrected. (Months of inventory for August were revised downward to 7.3, so months of inventory haven't dropped.)

The year over year sales and price declines are accelerating and it's a widespread pattern.
Comparing August 2006 sales to August 2005 sales (non-seasonally adjusted):
National: -12.0%
Northeast: -11.7%
Midwest: -11.2%
South: -6.8%
West: -21.6%
Comparing September 2006 sales to September 2005 sales (non-seasonally adjusted):
National: -16.3%
Northeast: -15.4%
Midwest: -16.3%
South: -11.2%
West: -25.4%
Now on to median prices for all homes combined. This is where it gets rough and ruthless. First, NAR revised its August figure down from 225,000 to 224,000. Second, the price declines are picking up fast:
Comparing August 2006 median sale price to August 2005 median sale price:
National: -1.7%
Northeast: -3.9%
Midwest: -1.1%
South: -2.6%
West: +0.3%
Comparing September 2005 median sale price to September 2006 median sale price:
National: -2.2%
Northeast: -5.1%
Midwest: -2.3%
South: -1.6%
West: -4.3%
This is a very fast decline, and reflects severe underlying weakness. Worse, the price declines are highest in the priciest regions with the best income increases. This means that overall equity loss is much higher than you would expect from looking at the national figure decline.

If you contemplate at the national figures broken out by single family and condos, things look even worse. The median sales price reported for both was $219,800. Single family median prices by region show no bright spots compared to September 2005:
National: -2.5% ($219,800)
Northeast: -6.7% ($265,200)
Midwest: -2.4% ($167,300)
South: -2.2% ($183,500)
West: -3.1% ($341,200)
Now for the truly ugly: Condo median prices by region compared to September 2005:
National: -2.8% ($219,800)
Northeast: -1.3% ($244,400)
Midwest: -0.1% ($189,600)
South: -2.3% ($183,600)
West: -12.4% ($251,900)
!!!!!! Look at the western condo median price and the northeastern single family median price. Believe me, "automated valuation systems" just got junked. What you are seeing here is the pancake effect that occurs only in severe housing declines. Imagine housing in an area separated into five tiers in terms of desireability, ranked from 1 being least desireable to 5 being most desireable. In the pancake, the middle tiers rapidly approach each other in price, which causes the lowest tier to plummet in pricing. The reason is that with relatively little price separation, most people buy on a tier higher than they would have previously, and the market for the lower tier falls off a cliff.

This is happening incredibly quickly. There will be no recovery next spring, because these types of price declines combined with the poor credit quality of the loans originated this year will force appraisal standards to go up and credit tightening next year. A lot of people will be walking away from interest-only condo loans, believe me.

Btw, the homebuilder third quarter reports are coming in, and they ain't pretty either. This mule was always cantankerous, and now it just stopped in its tracks and will not be beaten forward.

Hi Mama; Did you see the new home sales released today? I was too busy to follow up, but I think I saw a headline that the average sale price dropped something like 9%. Can that be right?

On another note, I saw your comment at Shrinkwrapped. You're WAY to smart to be wasting your time on Mortgage Products....
CF, I just got back. There is such a high degree of uncertainty in those new home sales reports that I am not going to put that much weight on it. On the other hand, it matches quite well with the existing home sales report yesterday. So....

Btw, NAR futzed the months of supply and seasonalized sale volume in yesterday's report. Months of supply is not less than 7.6 months no matter how optimistic you are, and seasonalized sales volume is overstated.

As for intelligence, don't you think we need to be getting a little more of it into the mortgage market? It seems as if the makers of this one are trying to give Amaranth a run for its money.
Mama; I don't want to sound like an old man ( I'm 46 and still hot looking, IMHO), but after 27 years on Wall Street, I never forget the one and only rule. Wall Streets job is to put the investors money into the pockest of Wall Street employees. Oh, and rule #2? It says see rule #1
Humble? HUMBLE? People do not survive for decades on Wall Street by being humble....

I think that WS is going to be having problems conforming to rule #1 within five months, because I have been LMAO over the spinning of the third quarter results. This is becoming very, very amusing.

This game is all about survival, and you are going to see some pretty active CYA-type material as people realize they do need to CYA.
I hope you're right, dear Mama. The easy credit is making my Relative Value Arbitrage very difficult. The motto we live by over here is "Chicken Little wasn't wrong, just early".

GDP looked a little soft, but hey, that's old news.

Going out for a 2 hour ride at lunch and it's 42 out. At least it's sunny. Perhaps all the riding is causing the snow out west? Ah, the Jet Stream is going the wrong way....
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