Existing-Home Sales Fall to 10 Year Low; Shadow Inventory Looms
Another month, another new low: Existing-home sales resumed its fall. The ugly details follow:
• Sales of single-family homes fell 3.2% to a seasonally adjusted annual rate of 4.27 million, the lowest since January 1998. Sales of condos rose 1.7% to an annual rate of 590,000, the highest since November
• All existing home Sales fell 2.6% (SA) month-to-month to an annualized rate of 4.86 million units in June. Thats a drop of 15.5% from a year ago in June 2007.
• The inventory of unsold homes on the market rose 0.2% to 4.49 million, an 11.1-month supply at the current sales pace, the second-highest inventory level since the mid-1980s.
• Today's data is the cycle high in inventory overhang, and the cycle low in sales and prices;
• The median sales price fell 6.l% in the past year to $215,100. Home prices nationwide have fallen 18% on average from their July 2006 peak, according to the S&P/Case-Shiller index of 20 metropolitan areas;
• Purchases are down by about a third from a record of 7.25 million reached in September 2005.• Short sales and foreclosures accounting for approximately one-third of transactions.
That last data point is the most important one, so let's review it: Fully one third of all existing sales are of distressed properties.This includes defaults, foreclosures, work-outs, walk-aways, etc.
Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA.
Because foreclosures aren't included in the data at all (they are not sold through realtors' MLS service) it is likely that the total inventory of houses for sale is APPRECIABLY HIGHER THAN REPORTED.
I expect we will be hearing more about the Shadow Inventory over the next few quarters . . .
courtesy of Barron's Econoday
>
Sources:
Existing-Home Sales Down In June
Washington, July 24, 2008
http://www.realtor.org/press_room/news_releases/2008/ehs_down_in_june
Sales of U.S. Existing Homes Fell to 10-Year Low
Bob Willis
Bloomberg, July 24 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=awApxYbP2hwA&
Thursday, July 24, 2008 | 11:19 AM | Permalink
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Looks like Goldilocks to me! SRS ETF up nicely today.....
Posted by: Jeff | Jul 24, 2008 11:30:08 AM
All during 2007, the permabulls kept arguing that “housing is only 5% of the enconomy”.
“Housing is only 5% of the economy”, so no reason to worry.
Does anyone know where this number came from?
(Just curious).
~~~
BR: The statement is somewhat confusing -- the 5% figure reflects new home construction contribution to GDP -- not existing home sales.
The average growth of GDP since 1947 has been 3.47% per year. 4.6% of that growth has originated in residential investment (new home construction).
Merely transferring title adds litle to GDP (RE commissions, mortgage writing, etc.)
However, as we saw from 2002-06, lots of activity in home sales leads to other economic activity (durable goods, refurbs, renovations, etc.)
Posted by: DL | Jul 24, 2008 11:46:00 AM
Barry,
There has been some discussion about foreclosures on the MLS over at CR. My understanding is most REO is listed on the MLS and is sold by RE brokers, some of whom specialize in REO sales.
But there are exceptions, and certainly an initial period when foreclosure has occurred but the house isn't listed yet. Banks are also simply abandoning some very low end houses in depressed areas of rust belt cities.
Posted by: Bob_in_MA | Jul 24, 2008 11:48:41 AM
The banks are apparently overwhelmed by this. There's a foreclosed house in my neighborhood that was sold last November and is still listed in the bank's name. Wells Fargo is at least 8 months behind on their paperwork.
Posted by: cynicalgirl | Jul 24, 2008 11:52:55 AM
"Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA.
Because foreclosures aren't included in the data at all (they are not sold through realtors' MLS service) it is likely that the total inventory of houses for sale is APPRECIABLY HIGHER THAN REPORTED.
I expect we will be hearing more about the Shadow Inventory over the next few quarters . . . "
Good tag BR..
It's amazing that, seemingly, every news release needs to be accompanied by Anti-Spin--thanks E. Janszen @ www.itulip.com
BR,
you are, still, one of the, all too, few that cares enough to parse the HeadlineNews to be able to communicate the full frame of events..
I'm thinking that you may be selling yourself short by appearing on narrow aperture outlets like CNBC & FBN, et al..
This, of course, needs to weighed against the advent of Internet2.
http://shibboleth.internet2.edu/
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Internet2
Posted by: Mark E Hoffer | Jul 24, 2008 11:58:37 AM
So are we done with $300 billion on the bailout - courtesy Frank/Dodd/Paulson/Bernanke?
Noooooo - this is just the deposit. The real payments will be coming in many supplementals - you know to keep it off balance sheet!
When does the bond market crack?
Posted by: malabar | Jul 24, 2008 12:49:58 PM
Yet, shameless CNBC is desperately looking for guests to call a bottom. They have two monkeys on now, one is actually calling the bottom...the other says forecasts are way too bearish, but not calling exact bottom yet. Personally, I trust Shiller much more than those morons. His chart is down to 170 now, so another 30% down at least geniuses. What do you expect from GE's propaganda arm?
Posted by: Steve Barry | Jul 24, 2008 12:50:49 PM
I live in a 64 unit condo complex in the OC. There have been two foreclosures in my complex. Both have For Sale signs in front, and neither appear on the MLS. It really makes me wonder how many more homes are out there.
Posted by: ELS | Jul 24, 2008 12:56:51 PM
This makes no sense... there is no recession and besides it's over and it wasn't that bad anyhow.
This must be Obama's fault. Or something.
Posted by: bluestatedon | Jul 24, 2008 1:15:48 PM
Yet, shameless CNBC is desperately looking for guests to call a bottom. They have two monkeys on now, one is actually calling the bottom...the other says forecasts are way too bearish, but not calling exact bottom yet. Personally, I trust Shiller much more than those morons. His chart is down to 170 now, so another 30% down at least geniuses. What do you expect from GE's propaganda arm?
Posted by: Steve Barry | Jul 24, 2008 1:22:02 PM
It is difficult to imagine any outcome that does not reflect a funhouse mirror's image of the Japanese collapse - the U.S. banking system is basically insolvent - those who have faith in level 3 assets retaining those values in exchage for real assets need to put down the Kool Aid.
With demand from a cash strapped U.S. treasury, there is no way both bonds and equities can rally - and the most likely scenario is both will still fall.
The really ugly reality is the possibility of a downgrade of U.S. debt.
Welcome to the banana Republic of U.S.A - ex US.
Posted by: Winston Munn | Jul 24, 2008 2:01:48 PM
I must now give credit to CNBC for putting Bill Gross on who blew to smithereens the hopes of a housing bottom...said equivalent rent ratio is like a P/E and it is still about twice what it was in the 80s. Burnett seemed quite deflated.
Posted by: Steve Barry | Jul 24, 2008 2:09:17 PM
Any thoughts on UBS criminal case? On Wamu?
Posted by: Steve Barry | Jul 24, 2008 2:16:58 PM
Any thoughts on UBS criminal case? On Wamu?
Posted by: Steve Barry | Jul 24, 2008 2:19:08 PM
Yes...Wamu down 18%, well off its lows.
Posted by: Sue Herrera | Jul 24, 2008 2:20:24 PM
Eleven point one month inventory of unsold homes? Based on the average buying rate for the last (HOW MANY?) years? That figure is wrong. The rate of buying is below the rate of selling so there isn't any reliable way to project inventory. When a dam fills up you can tell how far back the lake will extend by the height of the dam. Does anybody know how high this "dam" is?
Posted by: AGG | Jul 24, 2008 2:20:34 PM
NVR is reflecting some reality today (it's going down, down, down). I wonder what the chumps that bought in the last three days were thinking? Or was it discount window 2% loan money they planned to have us (as in US taxpayer) pay back when the stock tanked? What a racket! It's like paying a doctor to operate on a dead patient. Hold on to your wallet, folks.
Posted by: AGG | Jul 24, 2008 2:29:51 PM
Steve Barry @ 2:19:08 PM
Thoughts on UBS criminal case?
Yeah, Andrew Cuomo is planning on running for governor of NY.
Posted by: DL | Jul 24, 2008 2:34:15 PM
AGG, good point, but unless I've been understanding this wrong for a long time, the 11.1 months refers to the assumption that if no new houses were to go on the market, the inventory would take 11.1 months to exhaust.
The interesting thing I'm seeing, which very much relates to this, is that houses have come off the market without being sold. So people, myself included, are riding out the storm and sitting on properties. If those houses were listed, the problem would be even worse. This just tells me that when things do start to recover, that recovery is going to take a looong time before things return to "normal" as those lying in wait start putting for-sale signs back up. Personally, I wanted to move (out of state) last summer, but saw that it wasn't a good time (better to keep my seniority status at my current job then get a new one when layoffs are on the horizon), so I'm putting off that plan for a few years. I never listed on MLS, but I did have the house for sale for a while. Across the street from me, a house has been posted since the peak of the market when a real estate agent bought it to flip. Now, years later, and he's pulled the sign down and the house continues to sit vacant without the sign. No doubt that sign will be going back up when the market recovers, but it's going to be a while.
Posted by: Brendan | Jul 24, 2008 2:41:22 PM
I'll start sniffing around this market when the median falls below $175K. Most houses in most places are worth no more than that.
Posted by: Chris D. | Jul 24, 2008 2:49:22 PM
It's a good thing Cramer was on Regis today telling everyone that now is the best time to start buying houses again-multiple homes.
Posted by: babygal | Jul 24, 2008 2:54:51 PM
B.R.:
Unless I'm mistaken we are approaching the end of the summer selling season. If that is the case, you might start posting month on month sales . You know, like the Realtors like to do at the beginning of the season. We need a little spin now and then....
Posted by: Michel Caldwell | Jul 24, 2008 2:56:40 PM
Brendan,
I applaud your thinking. Added to the "problem equities" like houses that flop instead of getting flipped are the municipal and county tax dictators. These people don't understand the concept of lower property assessments. I've got a neighbor selling his house for $389,000. A couple of years ago he could have gotten that. Now it's a fantasy. His property taxes are $5,700 a year. So even if his house didn't require any maintenance (an impossibility) he has to eat $475 a month in property taxes.
I say enjoy your house but it's probably not a good idea to plan on making a profit off it.
Posted by: AGG | Jul 24, 2008 3:09:48 PM
DL,
I've linked to this before, but I think the data and discussion inside would answer your question. Ed Leamer of the UCLA Anderson forecast concluded that while housing is a relatively small part of the economy, it also is the largest contributor to booms and busts.
It's not hard to see how that might be the case. Even if housing is "only" 5% of the economy in the long run, it routinely sees transaction volumes cut in half during recessions. That translates into rougly 2.5% of the economy disappearing. With long-run growth at about 3%, a serious housing downturn alone is almost enough to push the economy into contraction. (Add in the multiplier effect resulting from unemployed construction, financing and others in the housing biz, and you have full-blown recession.)
Leamer's paper is a 60+ page pdf. I have it linked from my blog at http://www.belowthecrowd.com/archive/2008/07/real_estate_pri.html
-btc
Posted by: BelowTheCrowd | Jul 24, 2008 3:24:17 PM
Redmond, WA area... quite a few sold signs are appearing in the last few weeks on homes that have been sitting since fall. I expect we will see significantly improved sales number for King County next month.
Posted by: Bob A | Jul 24, 2008 3:30:57 PM
