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Existing-Home Sales Fall to 10 Year Low; Shadow Inventory Looms

Thursday, July 24, 2008 | 11:19 AM

in Data Analysis | Economy | Fixed Income/Interest Rates | Real Estate

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 . . .