Existing Home Sales Are Fantastic!

Thursday, January 25, 2007 | 10:30 AM

Existing Home sales were released today, and the data was soft. The WSJ reported

"Existing-home sales in the U.S. fell in December, capping a soft year that saw demand make its sharpest drop in 24 years.

Home resales fell to a 6.22 million annual rate, a 0.8% decrease from November's revised 6.27 million annual pace, the National Association of Realtors said Thursday. November's rate was originally estimated at 6.28 million. Sales for all of 2006 dropped by 8.4% to 6.48 million from a record 7.08 million in 2005. The drop was the sharpest since 17.7% in 1982. The decrease in resales interrupted back-to-back increases.

Some analysts say declining prices and soft demand has discouraged some homeowners from selling. The December resales level was below Wall Street expectations of a 6.25 million sales rate for previously owned homes. (emphasis added)

The accompanying commentary was really amusing. The oft hallunicatory David Lereah (previously mentioned here and here) said:

“Despite all the doom and gloom stories and dire predictions over the last year, 2006 was the third-strongest year on record for existing home sales.”

It reminds one of the old joke -- a guy leaps off the 108th floor of the Empire State Bulding. As he passes the 80th floor, he says, "So far, so good!"

That starry eyed obliviousness was simply too much for the Journal's Marketbeat, who noted:

We’ve heard of trying to sugarcoat things, but this is ridiculous. The National Association of Realtors said sales of existing homes just ended their worst year since 1982, and NAR’s chief economist David Lereah’s comment is this: “Despite all the doom and gloom stories and dire predictions over the last year, 2006 was the third-strongest year on record for existing home sales.”

Now there’s an assessment that might even make Baghdad Bob blanch. Sales for all of 2006 dropped by 8.4% to 6.84 million, down from a record 7.08 million in 2005. That’s the sharpest drop since the 17.7% decline in 1982, when Ronald Reagan was occupying the White House. His first term. Roger Moore was playing James Bond.

The bottom line remains that Housing is still in freefall; Rates are rising, and Sellers have yet to get realistic about pricing.

And in a related development, while inventory data did improve, the official stats do not include "phantom inventory."  That is a potential overhang, as many sellers who were unhappy with the bids they recieved simply pulled their house off the market. In the event there is any uptick in sales and/or prices, the phantom inventory could rematerialize.

All in all, a rather punk report . . .


UPDATE: January 25, 2007 11:51am

Kevin Depew's headline says it all:

"Existing-Home Sales Continuing to Stabilize In Terms of Plummeting"

Hard to top that one . . .


January Existing-Home Sales Ease
WASHINGTON, February 28, 2006

Drop in Existing-Home Sales For 2006 Is Sharpest in 24 Years
January 25, 2007 10:37 a.m.

All is Well!
David Gaffen

WSJ Marketbeat, January 25, 2007, 10:30 am

Thursday, January 25, 2007 | 10:30 AM | Permalink | Comments (27) | TrackBack (1)
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» "Unexpected Weakness in Home Sales" from The Big Picture
David F. Seiders, chief economist of the National Association of Home Builders, said the unexpected weakness in recent months had caused him to shave his forecast for housing construction this year. It now shows a fall of 23 percent after a 14 percent ... [Read More]

Tracked on Jul 26, 2007 7:24:14 AM


Good morning -- Here's my take on the numbers, for what it's worth. I have some more charts and details at my blog on housing and interest rates.


I think there are two key things to pay attention to:

1) Interest rates have been rising since early December and intraday, bonds are getting hammered. Falling rates are one force that re-ignited the market in the late fall. IF rates break out to the upside here, that's going to cause real problems.

2) The inventory decrease is SEASONAL. Inventory ALWAYS falls this time of year -- in good years and bad years for real estate. Only if inventory continues to decline into February and March will it signal a supply "peak," in my opinion.

Full analysis:
The housing market was like a trauma patient in the summer – suffering from multiple wounds and at death’s doorstep. Since then, a mild decline in interest rates and aggressive price-cutting/incentives from both new and existing home sellers have helped stabilize the patient. But he’s not getting off the gurney and walking out the door, either – not for some time.

Just look at the sales rate – at 6.22 million, it’s barely off the cycle low of 6.21 million in September. Look at median prices – they’ve gone nowhere in a year and a half. Or look at inventory. Yes, it dropped to 3.51 million units in December. But that is nothing unusual – it’s the customary, seasonal pattern we see year in and year out. Sellers who don’t sell during the main spring and summer seasons often pull their listings during the holidays, then re-list in the spring. Just to pick a few recent years, inventories dropped 2.7% between November and December in 2005 … 12.4% in 2004 … 9.6% in 2003 ... and 9.5% in 2002.

Lastly, there’s the interest rate picture. The yield on the 10-year Treasury Note has jumped about 40 basis points from its low in December. That is putting upward pressure on mortgage rates and helping stymie a rally in mortgage purchase activity.

Bottom line: The housing market is doing better than it was a few months ago, but it’s certainly not booming. I believe we’re in for a relatively weak spring selling season and a weak year. Expect subdued sales, flat to down home prices, and near-record inventories to keep buyers in the driver’s seat.

Posted by: Mike_in_FL | Jan 25, 2007 11:34:14 AM

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