"After bottoming in the fourth quarter of 2006, existing-home sales are forecast to gradually rise through 2007 and into 2008, while new-home sales should turnaround by summer, according to the latest forecast by the National Association of Realtors."
–NAR Press release
That’s the drug-addled ravings most recently unveiled by the tripheads at the National Association of Realtors. At a recent Rave, David Lereah was heard to say: "Dude, look at the trails — and the colors! Awesome!" He then giggled and wandered off, muttering to himself about New Home cancellation rates.
The rest of the NAR release amounted to a thinly veiled cry for help, revealing deep problems with either alcohol abuse or dementia. In a related development, several NAR economists were treated for blunt head trauma, a medical condition which helps explain the rest of their recent public statements.
According to the NAR:
• Existing-home sales for 2006 are expected to come in at 6.50 million; Existing-home sales are forecast to total 6.42 million in 2007;
• Total housing starts for 2006 are likely to be 1.81 million units; Total starts for 2007 are forecast to be 1.51 million; This is a drop of16.6%, to the lowest level in a decade;
• Median existing-home price for all of 2006 is expected to rise 1.1% to $222,100; For 2007, NAR forecasts a gain of 1.5% to $225,300.
• Median new-home price rose only 0.3% to $241,600 in 2006; NAR projects it to grow 3.0% in 2007 to $248,900.
• Annual totals for existing-home sales will be fairly comparable between 2006 and 2007
Note that some people who were not in the throes of a hallucinatory experience disagreed with the NAR assessment: Mortgage Bankers Association chief economist Doug
Duncan said "some markets could see price declines of 10% to
20% this year, a shift from the last four to five years, when
there were almost no markets where prices were declining."
Further, the sober Mr. Duncan forecasts that "Home sales will decline 7% to 8% this year, with most
of the decline in the first half."
>
Sources:
Gradual Rise Projected for Home Sales
National Association of Realtors
Realtor.com, WASHINGTON, January 10, 2007
http://tinyurl.com/yeto3d
Home Prices Seen Rising in ’07
CAMPION WALSH
WSJ, January 11, 2007; Page D2
http://online.wsj.com/article/SB116848119665773314.html
yes, this is satire . . .
Barry isn’t is interesting how everything anyone has ever studied in the field of economic hypothesis must either happen in 2007 or 2008? “Dollar collapse” and “housing bottoms”…(and Yes the satire. lol.)
You’re having too much fun, Barry!
2008 – The Year of the Real Estate Perp Walk?
“some markets could see price declines of 10% to 20% this year, a shift from the last four to five years, when there were almost no markets where prices were declining.” Further, the sober Mr. Duncan forecasts that “Home sales will decline 7% to 8% this year, with most of the decline in the first half.”
*YAWN* HEARD THE SAME THING THIS TIME LAST YEAR AND THE YEAR BEFORE. *SIGH*
Same dichotomy here in Vegas:
http://www.reviewjournal.com/lvrj_home/2007/Jan-10-Wed-2007/business/11812632.html
Um, but Larry, price declines of 7-8% DID happen in 2006…
If anything, those forecasts are very bearish. With CPI ex-shelter running at 3% a year over the last three years, a forecast for 0.5%-1.5% nominal price increases is a forecast for 1.5%-2.5% real price declines. That, I would posit, is a realistic assessment of one likely course of housing prices. There are a lot of things that keep prices from dropping in nominal terms, from the government subsidy to seller reluctance to leverage itself. You don’t have to have Mr. Nusbaum’s fetish for residential investment to believe that markets could continue to move up in nominal terms as they adjust.
Of course, another likely course are sales rate declines and actual nominal price drops. As I run the numbers it would take a further -15% drop in the sales rate for new homes to return to trend population growth, which imo is about where that rate should sit.
However, -10% seems like an outlying prediction for prices. Residential housing just doesn’t like to drop much in nominal terms.
Yes, Mel, in Anderson, Indiana they did fall 6%. Good job.
Mel — where, and more importantly, using what price series? Most of the “declines” have happened in median sales prices, which reflect not price drops but sales mix changes. That sales mix has moved is meaningful, but doesn’t tell you anything about price declines. For that, use a repeat-sales index like the OFHEO’s HPI. Click through, download the metro-area data, and check out how few showed a year-over-year price drop from 05Q3-06Q3. Even Detroit only drops a few percent.
wcw: good morning! nowhere did I write that I believe “that markets could continue to move up”. But, I like the fetish thingy.
Larry – You seem to have been around a while, so I was wondering, has there ever been a period when you were NOT bullish on RE? Because looking back, I see some times when RE didn’t do so well, and some of those times have some things in common with well, this time.
The NAR bullish in 2007? I am utterly shocked and gasping for air. Come on, when have they not been bullish? The L.A. Times published an article this Sunday in their Real Estate section discussing that we have reached the “bottom” of the housing correction.
Are you kidding me? What correction? The pent up inventory and pseudo demand was a last push by easy money lending and credit so abundant that Visa and Mastercard look like amateur hour at the Laugh Factory.
And Larry in regards to Phoenix, we’ve already pushed up to 50,000 in a matter of one week. Think inventory is going to go down especially with all the housing projects coming online this year?
Dr. Housing Bubble
John: I have not been “bullish” on housing since mid-2005. I remain bullish in commercial, especially in office condos and neighborhood strip centers.
I don’t buy the doom & gloom reports for two reasons: They have been wrong for 5 years running and because it is not hard to make money in housing even when national trends and national numbers are down. Can’t say the same thing about the stock market.
1991-1994 was a rough period for housing and a great time to buy.
Also, I have no idea why the David Lereah obsession is so strong. I have never met a single person (human being) who makes buy/sell decisions on houses or on condos based on what he writes in a report or says at a conference. I am sure that people don’t know who he is. That’s very different how investors use Wall St research to make investment decisions.
“The NAR bullish in 2007? I am utterly shocked and gasping for air. Come on, when have they not been bullish?”
Dr.: So what? Who cares if the NAR is bullish? Means absolutely zip.
Um, Larry, where we are here in NY? Prices in the Holy Land, also known as Westchester County, land to bankers, bankers and more bankers – down over 9%.
Annual Percent Change in OFHEO MSA House Price Indexes through 2006 Q3
Year Qtr New York-White Plains-Wayne, NY-NJ (MSAD
2006 1q +16.6 %
2006 2q +12.44 %
2006 3q +9.43 %
C’mon, fetishist, report the data in the normal way. OFHEO HPI for New York-White Plains-Wayne, NY-NJ looks like:
2005Q3 250.33
2006Q1 268.89 7.4%
2006Q2 271.98 1.1%
2006Q3 273.93 0.7%
I swear, it’s like herding cats getting people not to fudge the numbers.
Here’s an interesting article about what’s REALLY happpening in the real estate market, should anyone care after going through the rhetoric:
http://www.inman.com/inmannews.aspx?ID=61159
(it’ll be open until midnight; locked after that)
Sorry, was talking monthly medians…and the drops overall are worse than 9%. But ok, I will believe Larry from now on – all is well and perfect!
http://www.nysar.com/pdfs/monthmedian.pdf
Mel: don’t believe anything. It’s not important. We don’t invest in medians or averages. Find a good deal and buy it. But, don’t look to hold short-term. No one can make money in houses by watching the median price yoy in Ohio (or anywhere else). It’s not like buying a good company in the wrong sector at the wrong time.
Besides, commercial real estate continues to boom.
“Many of the bigger price decreases in the area were due to unrealistic pricing in the first place, she said — like homes with comparable sales at $775,000 priced at $950,000.”
And, a drop back down in pricing to it’s comp does not mean prices are dropping for these $775,000 houses.
Thanks for the link Sherman.
Larry, interesting, so if it was predicted that increasing the air in a balloon would eventually pop it, you’d look at the engorged, expanding balloon and say “well, they’ve been wrong about it popping in the past so now it’s less likely to pop.” Interesting.
I agree with the problem with the median, but the OFHEO measure, in addition to lagging tremendously, does not account for incentives or improvments and it only tracks homes with conforming loans. And if anything, the median is overstating prices, not understating, because people are generally getting more bang for the buck.
As of right now San Diego is generally down to mid-2004 price levels. This is a decline of probably 8-10% off the peak in late 05. This is clear from looking on an individual basis at current asking prices (for homes that haven’t even been sold yet) vs. prior sales for those homes.
Deny it if you like — doesn’t matter to me.
“I have not been “bullish” on housing since mid-2005…. 1991-1994 was a rough period for housing and a great time to buy.”
I have not been bullish for a little longer than you. I finally decided to sell/rent last spring (bought in 98, Bay area housing market). There are a lot of reasons, but basically, I just don’t see another 180% increase coming over the next 8 years. Sometimes it is just about price.
No, Kirk, I make no investment decisions based on “predictions”. But, had I made any based on housing bubble predictions that started in 2000, I surely would have missed the greatest boom in housing’s history.
“I just don’t see another 180% increase coming over the next 8 years. Sometimes it is just about price.” – No? But, maybe your new landlord does. And, even half of that will make him happy. Btw, now that you’ve sold when do you get back in?
My landlord did buy at a good time, right in that 91-94 period. He is no dummy. Plus, he has INCOME property. He is not bleeding money and hoping for appreciation. You should know how hard it is to even find income generating residential property these days. That says something to me.
I get back in when I can afford to buy my old house again. Either my income increases or prices come in. Right now, it is taking too long for either of these changes to take place, but I see the tsunami out on the horizon, and it is hitting Sac and SoCal as we speak.
My landlord did buy at a good time, right in that 91-94 period. He is no dummy. Plus, he has INCOME property. He is not bleeding money and hoping for appreciation. You should know how hard it is to even find income generating residential property these days. That says something to me.
I get back in when I can afford to buy my old house again. Either my income increases or prices come in. Right now, it is taking too long for either of these changes to take place, but I see the tsunami out on the horizon, and it is hitting Sac and SoCal as we speak.
“but I see the tsunami out on the horizon,”
Be sure to tell your landlord…..
WCW said:
“Mel — where, and more importantly, using what price series?”
We’ll I’ll put in my 0.02
In my neck of Northern CA, there has been a year-over-year median price decline of 10%. I’ve looked at the MLS data almost daily for the past 18 months, and there has not been a significant shift in purchases towards the lower end of the market. If anything, more of the larger, more expensive homes have been selling (trade-ups, most likely).
Y-O-Y prices are down on EVERY segment of the market, and even the local realtors acknowledge this on their website commentary. There has been a dramatic surge in foreclosure activity, that shows no signs of leveling off.
Over the past 5 years, the action in my market has seemed to precede the action in other markets in CA and elsewhere. Suffice it to say that I think you real-estate “anti-bears” are setting yourself up to be shocked in 2007.
I’ll continue renting, and I’m not even second guessing my decision (and I could buy a very nice home with cash).
The OFHEO repeat-sales metric is late, but it does not lag. The Q3 number is the Q3 price move, not Q2 or some other quarter. You just have to wait for it.
The OFHEO metric also has nothing to do with incentives. Its methodology explicitly excludes new construction — the “repeat-sales” designation should tell you as much. You can only have repeat sales on existing properties.
The OFHEO metric, iirc, further specifically does take into account improvements. When a property is improved, it is not considered the same property. It will eventually go back into the index, but only after selling a couple times after improvement.
Now, the one issue you point out is that only conforming loans are included. That means that the sample is skewed. The likely result, if I had to bet, would be slightly to bias down the HPI, but I am not certain. What do you think it does?
As for medians, they bias neither high nor low. They simply reflect sales mix more than price changes, though prices definitely affect them, especially over the long term.
San Diego per the HPI is down -0.2% from Q3 to Q4. It’s possible that, as a coastal market, its noncomforming loans were a bigger part of the market, peaked higher, and hance are down more. It’s also possible, of course, that anecdote is not data.
Oh, and worth remembering: I am a housing bear. I just don’t see any real data that prices have moved down 10%. Anecdotes, loads, but not data.
In the last housing downturn, the real HPI (deflated by CPI ex-shelter) starting in 90Q1 was negative on a year-over-year basis for sixteen (16) straight quarters, but the nominal HPI did not drop once year-over-year. Starting 80Q1, real HPI was negative for fourteen (14) straight quarters, but the nominal HPI did not show a single year-over-year drop.
That’s how I expect this souffle to deflate: with a slow erosion of values by inflation. Price drops may happen locally, but the big picture likely will show small “gains”.
You think resales don’t include incentives? Paying closing costs, throwing in improvements, etc… it’s happening all over the place.
As for not counting improvements I don’t see how that’s possible. I don’t know of a single house that hasn’t been “improved” in SD in some way before going back to market, as people thought (correctly, for a while) that a dollar spent on improvement got back 2 dollars at sale time. Anyway, how would the OFHEO know if I put in hardwood floors?
The medians absolutely do bias high or low when used as a measure of pricing power. They understated actual price changes on the way up (as people settled for worse and worse just to get in), now they are understating the decline as people get more bang for the buck.
I agree anecdote is not data, but the best data is looking at what individual homes are selling for now and what they sold for last. It’s tells a pretty clear tale and that tale is not -.2%. The data is out there if you care to look.
WCW – Didn’t see your second post until just now. I agree on the nationwide HPI — I was just replying to Larry’s implication that only properties in Anderson, Indiana and the like were declining.
Speaking of which, Larry, if you aren’t interested in this kind of stuff then don’t read or reply. For instance, rather than visiting your real estate pimping blog and replying with *YAWN* *SIGH* to every post, I just don’t go in the first place.
How exactly does the NAR come to their conclusions? What is their model? Looks to me they have always been pulling numbers out of their rear ends and the fact that they are predicting a tiny nominal price rise, means they are downright doom-n-gloom about the housing market – I’d imagine they are thinking of a 15-30% drop in price across the board. The NAR is NEVER going to predict a price decline, EVER. That just isn’t going to serve their interests (generating commission checks).