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

“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
, 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
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.


Existing Home Sales Rise in October, Market Stabilizing
NAR, November 28, 2006

Existing-Home Sales Climb, But Prices Show Record Drop
November 28, 2006 10:14 a.m.

Home prices post record drop in October
Chris Isidore, November 28 2006: 10:56 AM EST

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  1. Michael C. commented on Nov 28

    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.

  2. Bill commented on Nov 28

    Check out the VIX….volatility coming?

  3. jeopardy commented on Nov 28

    Does the price reflect the average incentives given out to make the sales?

  4. Daivd Diareah Lereah commented on Nov 28

    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 Losers!

  5. DavidB commented on Nov 28

    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

  6. Cherry commented on Nov 28

    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.

  7. Michael Carne commented on Nov 28

    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.

  8. NotLereah commented on Nov 28

    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.

  9. metroplexual commented on Nov 28

    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.

  10. GerryL commented on Nov 28

    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?

  11. ron commented on Nov 28

    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.

  12. Grammar Nazi commented on Nov 28

    Ahhhhmmm, it’s diarrhea, not diareah “Daivd”.

  13. my1 commented on Nov 28

    Guys don’t worry about the Data!

    “Falling prices are ‘a good thing, Lereah said”.

    Man, I love this guy!

  14. Mike_in_FL commented on Nov 28

    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.

  15. jj commented on Nov 28

    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

  16. wcw commented on Nov 28

    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.

  17. Macro Man commented on Nov 28

    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…

  18. Gold commented on Nov 28

    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…………

  19. traderb commented on Nov 28

    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.

  20. JohnB commented on Nov 28

    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….

  21. Gary commented on Nov 28

    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.

  22. eli commented on Nov 28

    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

  23. Gold commented on Nov 28

    That mortgaged backed paper that has been quietly stuffed to Joe and Jane Doe in their stable money market funds is a real ticking time bomb. If the home owners just turn in the keys that mortgaged back paper is going to be as good as a Sunday comic section. More sheep lining up to be fleeced once again……..

  24. Gold commented on Nov 28

    Give me TIPS or give me GOLD

  25. Flic commented on Nov 28

    Florida numbers were horrendous today. Ft. Myers posted a 44% decline in prices….Sarasota down 18%….

    This is getting uglier than I even imagined and I’m pretty pessimistic….

  26. Mark commented on Nov 28

    gold last time i checked fannie and freddie have an implicit US govt guarantee, it’s gonna be you and me bailing out their arses. as for subprime mortgage abs, thats whole different story, see Ameriquest putting ITSELF out for the bid today, scary stuff

  27. herb schlagman commented on Nov 28

    yes, i understand all that but…….
    THE MARKET keeps on going UP!!!!!
    so why does it matter?

  28. Si commented on Nov 28

    Psychological factors?, that is one of the scariest things I have ever heard uttered by a economist. All kinds of scenarios play out in the mind when you realise these guys are now attempting to play the brain game.
    ‘Hi this is Suzy Bazookas with Fed Chairman Ben Bernanke, Mr Bernanke, to what do you attribute the 30 percent drop in financial markets this year?’.
    ‘Well Suzy through the use of extensive models and some the brightest minds in the business we believe its because people are…er…… Blue …….and this is having a destabalising effect on the economy’
    ‘Yes that is Blue with a B Suzy’
    ‘To what do attribute this…er…Blueness to Mr Bernanke’
    ‘Well its really hard to tell at this piont Julie,,,,if I can call you that…., it could be anything.
    All the usual suspects apply, Death, unemployment, negative equity or perhaps more likely the loss of a favourite pet or cuddly toy’.
    ‘What do you intend to do about this Mr Chairman’
    ‘Well Bazookas…..I mean Juzy…er….I think all the miserable bastards should cheer up basically, its destabalising the markets and the dollar. By the way are those……. real, …….did you know I control the world money supply’

  29. Pris Tine commented on Nov 28

    When I was bumming around during the 1973 oil spike,
    making hard cash by baby-sitting cars in gas lines, one
    of my gas-hop “clients” invited me to his sales seminar.
    Why not? The US economy in 1973 was upside down.

    We pulled up to this Ramada Inn with a ballroom. He
    showed me to a seat, then leaped up on stage, in a
    small town of farmers and poor retailers, like 1000’s of
    other farm towns across America, dying on the vine.

    My patron began his pitch:

    “Ladies and gentlemen, tonight I’m going to show you
    how to get wealthy beyond your wildest dreams!!”

    Nothing. Tough crowd of farmers. Cheap Charlies.

    The guy fished around in his hip pocket, took out his
    wallet, and loudly snapped a $100 bill, twice, to get
    everyone’s attention. (That’s be a $1000 bill today).

    “I’m going to make you so rich, you can burn money!”

    Which he did, to a huge collective aspiration of air that
    sucked all the brains out of that room. You could have
    heard a pin drop … just before the stampede to the
    front of the stage, shoving with their checkbooks out.

    He cleared $10 large easy that night, off one $100 bill.

    Bernanke is doing it the old fashioned way. Helicopters
    in the $100 bills, and lets the realtors skim the profits,
    and municipalities jack the property taxes higher, at the
    same time as utilities are going into a Low Earth Orbit,
    while you are I are stuck with a $650K sugar shanty.

  30. Eclectic commented on Nov 29

    I’ve read every word of Fed Chairman Bernanke’s prepared remarks released just prior to his presentation on 11/28/2006.

    The whole thing is here if you want to read it:

    His discussions concerning: housing and the potentials for it to improve or worsen; the slowing pace of economic output that should moderate; and the impact of a, at least temporary, decline of productivity, all give both sides of the economic debate opportunities to reinforce their opinions.

    However, in my opinion his most significant observations are in the passage reproduced below.

    I’ll break it up merely for ease of reading and only disturb the flow with my own comments identified in this manner: [***comment]

    Begin quoting Mr. Bernanke:

    Potential Output

    In my remarks today, I have alluded to the economy’s underlying productive capacity–in the jargon of economists, “potential output.” The growth rate of potential output is the rate of growth that the economy can sustain in the long run. I will briefly discuss the factors determining potential output and the implications that the growth rate of potential output has for the economy and monetary policy.

    Growth in potential output is determined to a large extent by two factors: the trend growth rates of the labor force (that is, the number of individuals available to work) and of labor productivity (that is, the amount of output that each worker can produce).
    With regard to the labor force, research by the Board’s staff highlights the role of demographic factors in determining the number of people available to work in the years just ahead.

    Most notably, the impending retirement of the baby boomers and the fact that women are no longer increasing their participation in the labor force at the rate they were in the past will tend to restrain the future growth rate of the U.S. labor force.

    ***this is the primary reason that BLS data may not demonstrate significant increases in unemployment over the coming months and years, because the great demographic retirement process of the Boomers will continuously (marginally) work to shrink the employment base.

    All else being equal, these developments translate into a slower rate of growth of potential output. Estimates of the magnitude of the likely slowdown in labor force growth, particularly in the longer run, are subject to significant uncertainty. For example, to a degree that is hard to predict, improved health and increased longevity may increase the interest of older workers in remaining in the labor force, perhaps on a part-time basis, and an increasing scarcity of labor may prompt changes in labor-market institutions and employer behavior that facilitate the participation of older workers.

    But those adjustments are likely to take time, and some slowing in the growth of the labor force thus seems likely over the next few years at least.

    ***my opinion: 10 years minimum, maybe 15-20 maximum, depending on a number of factors. If you assume Boomer cut-off to be those born not later than 1960, then they’ll (we’ll!) all be between 60 and 75 by the year 2020.

    With regard to productivity, I remain optimistic that the recent favorable trends will continue. The price of computing power continues to fall sharply, having declined by nearly half between 2000 and 2005. Increased computing power has contributed, in turn, to the development and growth of other commercially relevant technologies, such as biotechnology, and has led to improvements in efficiency, through better supply-chain management, for example.

    ***if you’ve read other comments I’ve made on this blog, I’ve claimed that the real objective (even if only subconsciously expressed) of all human economic endeavor is: ‘the marginal reduction of the costs of goods and services to zero.’ It is the great growth engine of increases in the standard of living, without a corresponding increase in the nominal costs of that standard of living.

    Moreover, whatever the pace of future technological progress, further diffusion of already-existing technologies and applications to more firms and industries should continue to increase aggregate productivity for a time.

    ***oh, what an understatement!

    That said, longer-run trends in the growth of productivity are very difficult to predict. During the first half of the decade, productivity in the nonfarm business sector increased at an unusually high average annual rate of about 3 percent. However, according to current estimates, productivity growth slowed in the second quarter of this year and came to a halt in the third quarter. Moreover, the strength of recent hiring raises the possibility of subpar productivity growth in the fourth quarter as well. When all is said and done, however, I expect that the latest numbers will turn out to have been a reflection of the typical volatility in the data and some cyclical response to the slowing in economic activity, not a signal of a sea change in the longer-run outlook for productivity growth.

    Even if productivity growth is sustained at a reasonably good rate, the slower expansion of the labor force will imply some moderation in the rate of growth of potential output over the next few years. In the very near term, that slower growth in the labor force needs to be taken into consideration when assessing the sustainability of given rates of expansion in economic activity.

    In the medium term, because the factors that affect potential output and thus aggregate supply also tend to affect aggregate demand, slower growth of potential output does not necessarily mean that inflation will be higher or that monetary policy will have to be tighter.

    Rather, the implications for monetary policy of a possible slowing in the growth of potential output depend on the extent to which such a slowing alters the balance of supply and demand in the economy.

    ***lower GDP may or may not require monetary stimulus.

    For example, as we saw in the second half of the 1990s, changes in expected productivity growth and potential output can significantly affect aggregate demand through their influences on income expectations and asset prices. The problem for policymakers is to identify, in real time, any changes in the prospective growth rate of potential output and to anticipate the accompanying effects on the balance of supply and demand.

  31. bob commented on Nov 29

    Real estate will never drop like a rock. It will decline very slowly, year after year after year.

    Don’t expect any sensational headlines.

  32. Flic commented on Nov 29

    “Real estate will never drop like a rock. It will decline very slowly, year after year after year.

    Don’t expect any sensational headlines.”

    Florida is the exception:

    Ft. Myers FL prices down 44% yoy
    Sarasota, FL prices down 18% yoy

  33. claiz commented on Nov 29

    Real Estate CAN drop like a rock. It happened in HK, UK, Australia, and I see no fundamental reason why it cannot happen in US, especially in over-heated Metro area. I personally lived through the housing bubble in Hong Kong and saw my home price dropped 50% in 2 years. And my case is not that unusual in Hong Kong at that time (lately 90’s). You can refuse to believe it, but like it or not, it can happen. For any asset class, if the price can go up quickly (panic buy), it can go down quickly too (panic sell).

    To me, the real indicator is not really sales or price, but inventory. The market cannot be described as stablized unless the inventory starts to reduce significantly.

  34. Costa commented on Nov 30

    I got a question. Im 23, and in 3 years would like to own some property. With everyone talking about housing market crashing etc. Should I even be thinking of buying a house in 3 years. I live on Long Island and can see housing prices have sky rocketed and now people are having trouble selling them, at these inflated prices.
    How should I apporach thinking of buying a house

  35. jj commented on Nov 30

    there were 425 residential foreclosures in the five NY boroughs between July and September, a 20% increase over the same period last year

  36. Fritz commented on Nov 30

    The CME housing futures are showing that housing prices across the country are down 4 to 8% from today into November 2007. These markets, usually traded by institutional and sophisticated investors, are regulated futures and options – real money (about $300 million of traded futures and options since May 2006) taking positions that settle against the S&P/Case-Shiller Indices. Having a look at these markets will certainly present where professional traders see the next year of housing prices are going.

    Of note is the disconnect between OFHEO and S&P/Case-Shiller Index values from 2q06 to 3q06 (S&P/CSI showed steeper drops in general). With OFHEO putting a ceiling in at $417k for mortgages, the higher end of the market is not getting representation.

  37. Fritz commented on Nov 30

    The CME housing futures are showing that housing prices across the country are down 4 to 8% from today into November 2007. These markets, usually traded by institutional and sophisticated investors, are regulated futures and options – real money (about $300 million of traded futures and options since May 2006) taking positions that settle against the S&P/Case-Shiller Indices. Having a look at these markets will certainly present where professional traders see the next year of housing prices are going.

    Of note is the disconnect between OFHEO and S&P/Case-Shiller Index values from 2q06 to 3q06 (S&P/CSI showed steeper drops in general). With OFHEO putting a ceiling in at $417k for mortgages, the higher end of the market is not getting representation.

  38. Wally Smith commented on Dec 1

    How to maximize your return on investment when selling your home.

    I want to give buyers something to talk about by investing their resources into getting their home into its best condition. This is time and money well spent but you’ll need to concentrate on the areas that will bring you the most return.
    Focus on the areas that buyers notice and value – bathrooms, kitchens, and curb appeal. Make sure your rooms are spotlessly clean and free of clutter. A fresh coat of paint in a neutral color is one of the least costly investments that can go a long way towards making a good impression. De-personalize your rooms by packing away your nick-knacks and dust catchers. If possible. put extra furniture or belongings into storage so that your home appears open and spacious. Clean your windows so they sparkle – and don’t forget the window sills.

    Trim your trees and hedges and keep the lawn mowed. Plant some colorful flowers in the garden. Drive by your home and try to look at it from an objective viewpoint. What’s the first thing you notice? Does your front door say, “Welcome”? If not, maybe a fresh coat of paint – or perhaps even a new front door – and some potted plants could help.
    The way your house looks should not be your only concern. Is there a pet odor or other potentially offensive smell in the air? Be sure any odor producing agents are removed or controlled to keep your home fresh smelling at all times. When you live in a home you can become used to certain odors and they are easy to overlook. Be sure to ask others if your home passes the “sniff” test.
    Be aware that certain investments you made for the personal enjoyment of your home will not necessarily raise the value of your home to prospective buyers. Don’t expect to add on to the price of your home all the money you paid to improve it.
    In fact, some things, like swimming pools, can frequently be viewed as a liability. Generally, painting and improving your kitchen and bathrooms will be a good investment. The kitchen is viewed as the heart of a home – most family activities take place here so improving your kitchen can facilitate the sale of your home. Adding a bathroom usually generates a good return as well as adding decking outside.
    The best return for your home improvement dollar comes from bathroom remodeling (80%), bathroom addition (81%), minor kitchen remodeling (87%), major kitchen remodeling (80%), and a second storyaddition (83%). The least profitable investments are a home office (54%), reroofing (60%), a sun room (60%), replacing windows (68%), and refinishing your basement (69%). In a slower market, it’s essential to pay attention to the presentation of your home. With so many homes on the market to choose from, you want to be sure you outshine the competition. You may even want to consider hiring a professional home stager to help you.

    Wally Smith Anne Vaughan
    Realty One Group
    10161 Park Run
    Las Vegas NV 89145
    (800) 403-1808 toll free
    (702) 375-2700

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