NAR's Existing Home Sales & Prices
Its "Trash a Trade-Group's Spin" day here at the Big Picture. After this morning's look at the National Retail Federation's nonsense, we might as well have a go at this morning's enzyme-free donkey fazoo from the National Association of Realtors.
The data: Existing Home Sales & Prices
The spin? Let's have a look at what the friendly agents at NAR had to say:
David Lereah, NAR’s chief economist, said market fundamentals are improving.
"The present level of home sales demonstrates some confidence in the market, but sales are lower than sustainable due to psychological factors"
“The annual decline in the October median home price is skewed because there was an uncharacteristic spike in October 2005, but the trend for the fourth quarter will be prices remaining slightly below a year ago.
Fundamental's are improving? Well, the freefall in unit sales stopped -- thanks to a record drop in prices:
"The median home price was $221,000 in October, compared with a revised $221,000 in September and $229,000 in October 2005. It was the largest year-to-year decline ever and a record third consecutive decrease, NAR said." (emphasis added)
Somehow, Lereah overlooked the small issue that October's 3.5% decline in the national median existing home price follows September's 1.8% year-on-year decline. (Whoops! I'm sure he'll follow up on that next month).
How common is this annual fall? CNN/Money noted:
"While month-to-month declines in home prices are not uncommon, year-to-year drops had been rare before the recent housing slump. Last August was the first month in 11 years to see such a decline."
Let's move on to Confidence -- is it really returning? Certainly not based on the increase in inventory:
"Inventories nationally increased 1.9% at the end of October to 3.85 million units. That represents a 7.4 month supply at the current pace of sales."
Hmmm, how about that unusual spike in 2005 which skewed the data? Let's have a closer look at that, and see how unusual it realy is. We go to Kevin DePew at Minyanville, who is on the case:
"Lereah claims the October decline in national median prices is "skewed" due to "an uncharacteristic spike in October of last year. Sure enough, in October 2005, the national median price jumped 16.6% year-on-year, which followed September's 13.4% year-on-year jump, which followed followed August's 15.8% jump, which followed July's 14.1% jump, which... wait a minute... followed... STOP IT! That's not an uncharacteristic spike. That's a freaking TREND!"
Finally, I am not sure just what it means to say that "sales are lower than sustainable due to psychological
factors." My best guess is that's a polite way to say: "You want howe much for that house? What are you f%$#@ crazy?"
Bottom line: Investors need to look at data sources very very carefully before relying on them -- this is especially true when the source is a trade group, who tend to be non-objective, and indeed have a very specific agenda that benefits from happy talk. In the present case, a strong motivation for transactional business.
>
Sources:
Existing Home Sales Rise in October, Market Stabilizing
NAR, November 28, 2006
http://www.realtor.org/press_room/news_releases/
2006/ehs_oct06_existing_home_sales_stabilizing.html
Existing-Home Sales Climb, But Prices Show Record Drop
JEFF BATER
November 28, 2006 10:14 a.m.
http://online.wsj.com/article/SB116471970158834473.html
Home prices post record drop in October
Chris Isidore
CNNMoney.com, November 28 2006: 10:56 AM EST
http://money.cnn.com/2006/11/28/news/economy/
homesales/index.htm?postversion=2006112810
Tuesday, November 28, 2006 | 01:19 PM | Permalink
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Comments
Not because of Barry, but because I see David Lereah a couple lines down, I don't even bother to read the rest of this thread.
The bottom line is always the same - he's full of sh*t.
Posted by: Michael C. | Nov 28, 2006 2:00:05 PM
Check out the VIX....volatility coming?
Posted by: Bill | Nov 28, 2006 2:12:28 PM
Does the price reflect the average incentives given out to make the sales?
Posted by: jeopardy | Nov 28, 2006 2:16:08 PM
We track DQ sales in Silicon Valley & find several recent reports are inconsistent with their own data.
Please see, "Something seems fishy..." at:
http://www.viewfromsiliconvalley.com/id276.html
The latest Silicon Valley trends are evident in,
"The Last 30 days (Nov'06 edition)" at:
http://www.viewfromsiliconvalley.com/id281.html
Thanks!
Posted by: vfsv | Nov 28, 2006 2:24:07 PM
Obviously you have not read my NEW BOOK!
It's " Why the bull market in housing will begin anew in 2007 and continue forever!"
You just don't understand the fundementals like I do. Didn't you see my powerpoint presentation on davidlereahwatch.com? Losers!
Posted by: Daivd Diareah Lereah | Nov 28, 2006 2:24:37 PM
I can't wait to see what the slow month of December will do to the numbers. Add a slowing trend to a normally slow month and the spin doctors will go apoplectic
Posted by: DavidB | Nov 28, 2006 2:30:56 PM
LOL, improving. Hardly. Sales also didn't climb, but were stagnent but NAR are spinners. Rarely do existing sales fall at this stage(compared to New Home Sales obviously). They decline by foreclosures and slowly coming to reality your home isn't going to rise 20% this year. Looks like October some people just bit the dust and decided to unload, for a loss probably.
Posted by: Cherry | Nov 28, 2006 2:36:48 PM
It's still going on in my neighborhood in LA. Last April a "realtor investor group" bought a 1400 sq ft 3br 2ba 70 yo house four houses down from me for 650k. They put about 50-75k in it, new paint, granite counters, fixtures, enclosed the back porch, landscaping. Just put it back on the market 3 weeks ago for 1.1 million as a 2br 2ba 1600 sf house. Somebody WILL come and pay more than 1 million for it. The zillow value is 730k. Ridiculous.
Posted by: Michael Carne | Nov 28, 2006 2:42:42 PM
Just looking at the raw sales numbers instead of the seasonally adjusted ones, sales dropped. I think they mess with the seasonal adjustment (not proven, just my supposition) to suit their taste so I just go with the raw data. So sales down 2.1% MoM, only 8.3% YoY.
Posted by: NotLereah | Nov 28, 2006 2:45:38 PM
Btw, I have been corrected by my brother in law (who on occasion golfs with Mr. Lareah) on Mr. Lareah's name proniunciation. It does not rhyme with diarhea (although with the stuff he spews...). It is pronounced (Luh-Ruh)
Both syllables rhyme with duh.
Posted by: metroplexual | Nov 28, 2006 2:46:11 PM
I understand what you say about trusting information from trade group. My question is: can we trust their numbers? Are the numbers actually worse and they have some fudge factor we dont know about?
Posted by: GerryL | Nov 28, 2006 2:46:26 PM
No, my name rhymes with diareah!
Posted by: Daivd Diareah Lereah | Nov 28, 2006 3:04:31 PM
If times are not that bad, why are realtors supplementing their incomes by selling power wheelchairs?
Posted by: Michael C. | Nov 28, 2006 3:34:34 PM
a reminder that median home sales reflects sales distribution above and below the median price. It does not reflect appreciation or lower price points. It is an indication that homes below the median are selling at a greater rate then above.
Posted by: ron | Nov 28, 2006 4:13:00 PM
Ahhhhmmm, it's diarrhea, not diareah "Daivd".
Posted by: Grammar Nazi | Nov 28, 2006 4:13:43 PM
Guys don't worry about the Data!
"Falling prices are 'a good thing, Lereah said".
Man, I love this guy!
Posted by: my1 | Nov 28, 2006 4:16:31 PM
I summed up my views on the housing report thusly --
The National Association of Realtors released October existing home sales data earlier this morning and it contained what you might call "good" news, bad "news," and "ugly" news all wrapped up into one report.
The long version is below and at my blog. The short version is "It's the supply, stupid!" (paraphrasing the early 1990s Clinton campaign slogan) We are literally swimming in unsold inventory -- hundreds and hundreds of thousands more units than we would normally have on the market, and just shy of the most we've EVER had. It's going to take a long time to work through it all ... just like it took a long time to work through all that excess capacity and other junk left over from the tech bubble.
Full post below ...
* The sales rate was up 0.5% between September and October to a seasonally adjusted annual 6.24 million. You could call that "good." At the same time, sales were still down 11.5% year over year.
* The inventory news was "bad" all around. The "months supply at current sales pace" measure of inventories ROSE to a new cycle high of 7.4 months from 7.3 in September and 4.9 a year earlier. The condo market is in even worse shape – We have 9.1 months worth of inventory there, up from 8.5 months in September and 5.4 a year earlier.
Actual TOTAL raw inventory climbed to 3.85 million units from 3.78 million in September. The October level is just shy of July’s all-time record, and the month's move REVERSES the minor downtrend we had been seeing in inventory for sale. In condos, to give you an idea for how bad the situation is, supply for sale was up a whopping 45.4% year-over-year, whereas sales were down 14.5% YOY.
* Prices are downright UGLY. Single family homes dropped 3.4% in value year-over-year, the worst drop on record (data goes back to 1968). Condo/co-op prices were down even more – 5.3%. These figures show that prices are declining at an accelerating YOY rate.
Bottom line: While sales rates have stabilized from their summer lows, these latest figures show the housing market is NOT out of the woods – not by a long shot. There is a HUGE supply glut that isn’t going away anytime soon. It’s going take still-lower interest rates, stable employment, and lots and lots of time to work off the excesses of the early 2000s. Don’t expect that to happen overnight. And if anything goes wrong (a recession, surge in unemployment, etc.), things could get worse.
http://interestrateroundup.blogspot.com
Posted by: Mike_in_FL | Nov 28, 2006 4:19:16 PM
2 apartments sold in my building this past month .... One was cut 3 times in price , and one was cut twice , they both took 9+ months to sell , and this is Beekman Pl.
btw , anyone want a 3-bedroom ? only 2.4M
Posted by: jj | Nov 28, 2006 4:23:22 PM
9 months with 7.4 months supply seems pretty fair. The number of price cuts is immaterial; the sellers are just engaging in price discovery in a declining market.
I can't get exercised about the NAR talking their book. I talk my book all day long. Their data are fine, especially on inventories; the OFHEO has much better price data. A quick look at the chart will disabuse anyone who thinks the market is going up.
The reason realtors don't make enough money has nothing to do with the market, and everything to do with low barriers to entry and a transactions-based compensation structure. Long story short, there are always too many agents, so profits for most get competed away.
Posted by: wcw | Nov 28, 2006 4:59:25 PM
For what it's worth, the September Case/Schiller house price index was released this evening, showing y/y house price growth slowing to 3.7%.
This index, while not as comprehensive as the OFHEO, nevertheless provides a broader and more accurate portrait of house prices than the data to be gleaned from the new and existing sales figures, which measure prices on the flow but not stock of housing.
I think it is safe to say that Schiller is not a shill (pardon the pun) for the housing/realty industry...
Posted by: Macro Man | Nov 28, 2006 5:22:19 PM
Hard to imagine the pain that is going to be felt if Adjustable rate mortgages are on a steady uptrend while home prices are on a steady down trend. What a mess they have created.......... another easy money credit induced asset inflation bubble. Greenspan got the hell out of dodge just in time............
Posted by: Gold | Nov 28, 2006 5:50:04 PM
yeah but once bernanke cuts rates down to 2% those ARMs are gonna be getting cheaper, maybe just maybe the market stabilises at some point next year.
and as i've said before, you guys don't know what a housing boom is until you look here at the UK...a VERY AVERAGE 2-bed apartment in London is basically the equivalent of $1m.
think it's telling me the exchange rate is wrong, i'll swap your dollars for my pounds for 2 to 1 any day.
Posted by: traderb | Nov 28, 2006 6:06:36 PM
Donald Trump is still teaching people about the wonders of real estate at the learning annex (and getting record fees for it). That's hardly a bottom.
We haven't seen anything yet. I fully expect to see on the front page of the LA Times, people swearing off real estate, handing in their keys, devestated and broke. There will be investigations into these crazy exotic loans. Joe and Jane Smith will testify..."but I didn't know they were risky!"
These NAR guys are looking at the Nasdaq dropping from 3800 to 3500. Wait til we get to 2000. Greenspan left the building just as it started to catch fire....
Posted by: JohnB | Nov 28, 2006 6:13:25 PM
Unfortunately Bernake can't cut rates down to 2% because the already wobbly dollar would collapse. I suspect the dollar is going to be the achilles heel of the Fed's attempt to print their way out of the hard times that should have followed the bursting of the tech bubble.
Posted by: Gary | Nov 28, 2006 6:15:12 PM
For the nerds interested in Lereah's name. Here's some fun:
First, his name.. from the pronunciation.. should probably be spelled Le Reah. And.. well... I know La Rea is spanish for The Criminal.
So maybe it's a phonetic mispelling of the spanish.. or it's French for the Criminal?
That would fit. :p
Posted by: eli | Nov 28, 2006 6:40:34 PM
