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
http://www.realtor.org/press_room/news_releases/2006/janehs06.html
Drop in Existing-Home Sales For 2006 Is Sharpest in 24 Years
By JEFF BATER AND BRIAN BLACKSTONE
January 25, 2007 10:37 a.m.
http://online.wsj.com/article/SB116973168689287635.html
All is Well!
David Gaffen
WSJ Marketbeat, January 25, 2007, 10:30 am
http://blogs.wsj.com/marketbeat/2007/01/25/all-is-well/
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.
http://interestrateroundup.blogspot.com/
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.
I am as bearish as anyone on housing, but I don’t understand the exception that is being taken with the statement “2006 was the third-strongest year on record for existing home sales.”
I don’t know if it’s true or not, but assuming it is, then it does indicate that houses are still selling at a good pace. Obviously, the price appreciation that we’ve seen the first half of this decade is over, and of course, with speculators out of the market the volume is going to be lower, but apparently there are still buyers out there.
In any event, I still expect (and hope for) at least a 20% further drop in prices, but if people are still buying at “third-strongest year” levels even at these still outrageous prices, then it’s no sure thing.
Beazer Homes reported earnings of 41 cents per share, ex-items, 10 cents below the Reuters Estimates consensus. Sales dropped 27% year-over-year. Its forecast for fiscal 2007, per-share earnings: $1.25 to $1.50 vs. a consensus forecast of $2.32. Orders (net of cancellations) plunged 54% to 1,779 in the first quarter from 3,872 a year earlier. As I’ve been pointing out, Florida continues to be one of the hardest-hit regions in this downturn. Florida orders collapsed 86% YOY.
Everytime the TLT sells off it takes the existing home sales demand with it.It’s not very difficult to see why.Mortgage interest rates are mostly dependent on $TNX and that in turn influences the demand.We know that we have a excessive supply problem and any further squeeze in demand and you have a horror story for housing market.The enormity of housing crisis depends on the bond market.In fact the last thing housing market needs right now is a perception of strong economy.It’s the perception of weak economy that’s been leading the TLT rally, never mind the real inflation figure ( Though I felt that bond markets got that wrong and it looks like they are putting a long term top on TLT).Eventually it’s the rising interest rate that kills a neckdeep-in-debt economy and that’s how it will play out.Market is all gung-ho about a possible rate cut but I can’s see how that’s gonna help the economy.
Fed rate cut isn’t the same thing as the long-end rate cut which is set by the bond market.In fact Fed fears inflation, knows any more rate cut will kill dollar and the TLT more so in the face of rising interest rates in countries like UK.
$TNX threatening to break above September/October 2006 highs. Watch consumer (discretionary and staples) for market direction here, plus the mighty financials.
I am as bearish as anyone on housing, but I don’t understand the exception that is being taken with the statement “2006 was the third-strongest year on record for existing home sales.”
It’s probably true, in absolute terms of number of houses sold. But since the population and housing stock increases every year, you’d expect that a normal level of home buying and selling across the entire population would mean that every year was usually stronger than the year before, in absolute terms.
WCI recently reported that they had more cancellations than sales in Florida. Does anybody know what a negative house looks like?
” but I don’t understand the exception that is being taken with the statement “2006 was the third-strongest year on record for existing home sales.””
Perhaps it sounds like saying 1929 was the highest level on the Dow in the last 30 years (in 1930 of course).
Please give me Baghdad Bob over David Diarrhea any day.
Remember, today is a great time to buy or sell a home!!!
Gerry L Does anybody know what a negative house looks like?
Yes, I saw some in Watts a long time ago.
You folks are the biggest real estate bears around. You have completely ignored one amazing statistic in all this – that from Dec of last year to this, prices are the same. Prices are the same over a year and this is a bottom of the market falling out? Lets see, if the tech bust had had that kind of price drop, oh, right, there wouldn’t have been a tech bust. Are the numbers of sales down from the ludicrous numbers that were being posted in the “any bozo can flip a house for a huge profit” days (watch HGTV to relive those days), well, thank God they are. We are in a very healthy looking correction that by me was way overdue.
If the real estate industry is out there turning over 6+million units a year at the same price as last year, I just don’t see the big deal you all see. It’s just an 8% drop in yearly sales volume, whoop de doo. Drop the PRICES by 20% and I can see the excitement THEN.
I forsee a relatively flat market for a couple years, directly affected by interest rates which are unlikely to be favorable. But I just don’t see the sky falling in that you all seem to see. Plus, given the dismal forecast for the US Dollar, many asset bubbles including real estate may return.
Disclosure: I have owned three houses since 1989. My asset bubble has gotten supersized to Michael Moore proportions. My RE taxes likewise.
J. Swain – I’ll take the other side of that. Long rates almost have to go up modestly if a housing bust is to be avoided. If the inverted yield curve was correctly predicting a recession, incomes are likely to stagnate and unemployment rise. Unemployed homeowners may not be able to handle mortgage payments no matter what the rate is. That’s the other shoe to drop in the housing market.
A moderate rise in long rates can be handled in the context of strong incomes, particularly considering that the US is still largely a fixed rate market.
The really fugly scenario is if an Asian slowdown causes capital inflows to dry up at the same time as the US slows.
Estragon, Asia is booming, in fact overbooming, because of a shortage of savings. They’ve got inflation just like us
Teddy – Yes, I’m aware that Asia is booming now. I’m not so sure about the shortage of savings though. They’re significant contributors to the ~$2billion/day in savings the US imports daily.
The point was IF Asia slowed at the same time as the US, it could be a truly nasty situation for housing.
China’s CPI is rapidly increasing. In simple terms, they are sending too much of their savings over here, thus a shortage of it in China and inflation there. They need to raise rates or let the Yuan go higher or some combination thereof. Ditto Japan. Ditto Europe.
Estragon,
Asia will slow if US does. 40%+ of their growth is coming from exports (a lot of which ends up here). So the first area to suffer as a result of slowdown in the US will be Asia (not Europe, etc.).
Lewis,
By your comments, I assume you must be shopping for a new real-estate investment in this “flat” market.
Let me help you get started in your search, as there are apparently many good deals to be had out here in CA:
http://www.dqnews.com/RRFor0107.shtm
js, do note that Asia exports more to Europe than the US; also (Estragon) that indirect buyers of the last series of tbills were about half their usual portion. How long can private investors keep buying lousy tbills? But it could be just a soft spot that goes together with those spot talking spots about diversifying.
So it appears to me that the first area of a slow down is right here in River City. But lewis, the contrarian in this setting, reminds us that nominal median house prices have not cratered that much. I would bet that up-scale houses even less and large swaths of not-so-upscale houses somewhat more. Time to remind ourselves that the income/wealth gradient applies to these same pools of data and “median” conceals tons.
It’s also time to remind ourselves that sales of existing homes do not constitute new production; brokers, lenders, etc. may collect transaction fees, but that’s about it.
On the other hand, the oversupply of new homes means that production activity, i.e.. building, will continue to decline. Not only will construction labor be laid off, but demand for building materials and appliances will decline, possibly leading to layoffs at suppliers of same, and so on. And then all these unemployed people will buy less from the retailers, etc. The multiplier cuts both ways…
“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.”
LOL!
That was good for a laugh. Its like saying we’ve fallen off a cliff but the good news is we are still 8% from the top…..
….call me when you reach the bottom pal.
I guess when Lereah gets discouraged and finally throws in the towel(or resigns) you can call it a bottom.
Lewis:
You have completely ignored one amazing statistic in all this – that from Dec of last year to this, prices are the same. Prices are the same over a year and this is a bottom of the market falling out?
Weren’t you housing bulls the ones who were telling us 12 months ago that it was virtually a sure bet to buy a house. That if you bought last year you could expect the same kind of returns(~20%) without breaking a sweat? Of course it wasn’t you but unfortunately it was the industry you’re currently defending.
Now you are satisfied with zero percent ROI in a year not including inflation losses? That is a pretty big adjustment downward in a year. What will you settle for next year?
Just remember that if the price of your house is flat you have lost ground from an inflationary perspective(and we are only talking ex-inflation here, not the real stuff). I guess the good news is that your house is now cheaper for those that might be convinced it is a buy
Inventory is not seasonally adjusted
It’s not just asian central banks buying T-bonds that are keeping interest rates low. There are also petro-dollars from oil producing countries that are being recycled into US debt. The dropping price of crude oil is actually bond bearish bearish because the sheiks and mullahs have less excess cash to park into T-Bonds.
DavidB said Just remember that if the price of your house is flat you have lost ground from an inflationary perspective(and we are only talking ex-inflation here, not the real stuff). I guess the good news is that your house is now cheaper for those that might be convinced it is a buy.
I’m a housing bear. But comeon. So you are reminding the housing bulls that they may have lost 3-5% on their home in real terms if they account for inflation. I bet they would also remind us that many homes have increased 50-100% in the last 3-5 years.
I’m looking for 20% decline in home prices. Flat home prices? Is that the best us housing bears can do?!
We could very easily see net flat for the next ten years not counting inflation. Depending on where you put the marker that is how it has been for the stock market. Flat is not a good thing when the ground is moving backwards in terms of purchasing power on a yearly basis
Great News for you real estate bears, I found your market plunge this morning –
For new homes “The median sales price of $235,000 in December was down 1.3% compared with a year earlier”
Now, we will have to ignore “U.S. sales of new homes jumped by 4.8% in December” and “New-home sales have thus risen in four of the past five months”, but other than that, great news for all of you.
Ok, to get serious again. Yes I am a housing bull, long term. Anything that returns me about 10% a year long term with tax advantages is a winner in my book.
But in investing, I consider myself a vulture. I was early impressed with the old phrase, “bulls make money, bears make money, but pigs lose everything”. I extrapolated that out and decided that a vulture would win everything. So I change from bull to bear like a chameleon and just buy stuff the market has trashed/undervalued and peddle stuff I think the market has overvalued. Works for me, although in real estate the transaction costs are too high to bounce in and out of that market when it is rational.
Mr Bubbles:
Lewis,
By your comments, I assume you must be shopping for a new real-estate investment in this “flat” market
Au contraire, the vulture does not buy stuff in a market that looks flat or dormant, plus, if you saw my comment on RE taxes, you’d know that I am tapped out paying for other peoples roads, schooling etc through my tax bill. But he does hang on to the properties that have made his a fortune in the past and will make another one down the road.
DavidB
“Weren’t you housing bulls the ones who were telling us 12 months ago that it was virtually a sure bet to buy a house. That if you bought last year you could expect the same kind of returns(~20%) without breaking a sweat? Of course it wasn’t you but unfortunately it was the industry you’re currently defending.
Now you are satisfied with zero percent ROI in a year not including inflation losses? That is a pretty big adjustment downward in a year. What will you settle for next year?”
Someone pretty well answered this pretty well, and yes, I’ll take 0% for a couple years as long as I am sitting on 100% profit the last five. And au contraire, I thought the real estate market was sick the last couple years and could not continue, when I went to California last year and saw high school kids hired to stand on street corners all day flogging condo sale signs, I knew the mad cow real estate market had arrived.
And given that point of view, I think the comparisons of the last couple years insane sales numbers to this years is distorted by the madness that was going on in past years. I actually think the real estate market should correct a little more than it has, but the current trend tells me I am wrong yet again.
Lewis
Let’s all encourage David Lereah to put his money where his mouth is.
If the housing market has finally “turned the corner” (Ugh, another corner?) then wouldn’t now be a *great* time for David and all the “we’re past the bottom” trolls to jump back into the housing market and start buying up housing stock like there’s no tomorrow?
Buy it low and watch it zoom up!
After all, no harm in asking the snake oil peddler to swig a bit of his own medicine, now is there?
“I think the comparisons of the last couple years insane sales numbers to this years is distorted by the madness that was going on in past years. I actually think the real estate market should correct a little more than it has, but the current trend tells me I am wrong yet again.”
Bingo!! What the ‘sky is falling gloom and doomers’ fail to see, or else won’t admit is that the drop we are seeing in prices is based on a completely out of whack home buying frenzy on the part of the sheep like citizens of this country.
What we are seeing is a return to normalcy after 4 years of madness. The reported 17% drop in new home sales in 2006 sounds awful until you realize that even after that drop the year turned in the 3rd best record ever for sales. Further, with new home sales up 4 of the last 5 months it is clear we have seen the worst. Many people here seem to believe that once a market begins to drop it will never stop dropping. It was these same people who got hammered in the tech frenzy a few years ago when they believed that a rising market will never decline.
“Unexpected Weakness in Home Sales”
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 …