Housing Freefall Continues Unabated

A few items on the Housing front worth reviewing this morning — two data based, the other two are more of a media/anecdotal set of examples.

First, the Case-Shiller Home Price Indices shows negative annual returns in the U.S. National Home Price Index, the 10-City Composite and the 20-City Composite, as well as 13 of the 20 metro area indices.


As the chart above shows, the annual returns of the U.S. National Home Price Index was down 0.7% from Q4 2006 and down 1.4% from Q1 2006. This is only the second time in the quarterly national index’s history that the annual growth rate has fallen into negative territory. The first time was in the period between 1990 and 1991, as depicted in the graph above.

Shiller made the following comments:

“The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the U.S. residential real estate market. The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.”

The second data point worth reviewing is the Existing Home Sales (released on Friday). The WSJ reported that Existing_home_sales_may_07"Sales of existing homes slipped in April to their slowest pace since June 2003, and a rising inventory of unsold properties appeared to set the stage for weaker prices."

The sales rate in April was down 10.7% year over year.

Existing inventory jumped yet again — rising 10.4% to 4.2 million homes. At current selling rates, this is an 8.4 months supply (up from 7.4 months in March).

The number of unsold properties relative to sales hit a 15-year high.

So I think we can say that the bottom-calling/stabilization nonsense we heard from such housing experts as Treasury Secretary Hank Paulson were premature.

Third, we had heard repeatedly since from other "experts" from the NAR, and elsewhere that the Spring selling season was where we would see price firming and sales increases.

That turned out to be an over optimistic — i.e., wrong — expectation. An article in this past Sunday New York Times noted how simply horrific the Spring selling season has been:

"It’s spring, the traditional time for hope and growth in residential real estate sales. But beyond the borders of New York City, there are indications that a wintry chill besets the market in much of the region.

On Long Island and in Connecticut, brokers report the inventory of unsold homes continues to build, while the number of buyers is reduced by new lending restrictions.

In New Jersey, the market seems to have slowed from March to April — just when things would ordinarily be revving up. The number of sales contracts signed in April declined in 20 of 22 counties monitored by the Otteau Valuation Group, which does market analysis for brokers. Even in Hudson County, which encompasses such sought-after riverfront towns as Hoboken and Jersey City, sales volume declined 21 percent."

Pretty amazing. Despite all fo the obvious data, the bottom calling conmtinues unabated. I wonder if Tres. Secy Paulson got an early look at the New Home Sales data, was unaware of how volatile and flawed it actually is, and made his "call" expecting to look smart. (See this, this and this).

If you want to know what the builders themselves have to say, go to this article from Bloomberg today:

"New home construction in the U.S. may
take until 2011 to return to last year’s level, said David
Seiders, chief economist for the National Association of Home
Builders in Washington.

Monthly construction starts would need to jump by 21 percent
to reach Seiders’s benchmark for full recovery, which is 1.85
million. There were 1.53 million in April, the Commerce Department
said. At the height of the five-year housing boom in January 2006,
construction began on 2.29 million homes.

"We’ve fallen way below trend because we soared way above
trend during boom times,” Seiders said in an interview. "The
upswing will be relatively slow, unlike earlier cycles.”

The inventory of unsold homes is the largest since the
Washington-based National Association of Realtors started counting
them in 1999 and house prices have suffered the steepest drop
since the Great Depression, according to the realtors’ group.
Defaults and foreclosures also may rise as about $650 billion of
loans to subprime borrowers, those with poor or limited credit
histories, reset at higher interest rates by 2009."

The housing story is only halfway done, going to get worse as time progresses. We are not anyway near a bottom in Residential Real Estate.



Brings No Signs of Warming in Home Prices

May 29, 2007 09:00 AM EST PDF

Home Prices Could Soften as Sales Decline
WSJ, May 26, 2007; Page A3

It’s Spring. Somebody Tell the Buyers.
NYT, May 27, 2007

Home Construction Bust May Last Until 2011, U.S. Builders Say
Bob Ivry and Brian Louis
Bloomberg, May 29, 2007

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What's been said:

Discussions found on the web:
  1. John commented on May 29

    But Barry, so long as stock bulls believe, and buy, Paulson got what he wanted.

    Crescenzi’s on RealMoney this morning, saying that the gub’mint’s job figures are probably accurate, all your data to the contrary notwithstanding.

    The game is rigged. That’s just the fact.

  2. Doug commented on May 29

    So explain to me the action on the housing stocks. As someone who loaded up on sector puts it has been painful to watch as the news and data got worse and worse and the stocks go higher and higher this last month.


    BR: NEVER confuse any sort of economic analysis with stock or sector timing calls.

    One is (or should be) an overview of reality — the other an assessment of many separate forces, ranigng from money flow to sentiment to trend . . .

  3. Fred commented on May 29

    One thing to keep in mind is that the RE market down in Fla is currently locked up…hardly any sales being made. WHY? There is a special session of their legislature to consider a big change in the housing tax structure — like cost basis “carry over” or an increase in the Homestead exemption. This pending change has sellers, and buyers sitting on their hands. Many elderly homeowners that want to downsize can’t, as their taxes would in many cases more than triple…making it more expensive to downsize. A “fix” to this issue will substantially improve the market down in the Sunshine state.


  4. David Merkel commented on May 29

    On my recent vacation to Wisconsin, three real estate-related things hit me:

    1. It’s a buyer’s market, and it gets more so in rural areas.

    2. Excavators and Graders are begging for work.

    3. If you want to do fix-up or expansion projects, the help is cheaper than it used to be.

  5. 123 commented on May 29

    We are close to a bottom than we are the top.

  6. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  7. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  8. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  9. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  10. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  11. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  12. tj & the bear commented on May 29


    The consensus among Floridians on The Housing Bubble Blog is that all of the proposed changes to the tax laws would harm the market, not help it.


    The bottom is so far off that it can’t be seen with the Hubble telescope.

  13. Vega commented on May 29

    Barry, awesome stuff.

    Check out the comments below. They’re from John Burns Real Estate Consulting. In short, he sees what you see in RE: a huge mess. In fact, he says the mess is a lot worse than is being reported.

    From Mr. Burns (“Smithers, the link to the actual report is posted at the end…”):

    Closing Data: We purchase and compile actual home closing data for approximately 181 counties across the country, which captures the counties where about 55% of the U.S. population lives and a significant percentage of all of the counties where the large home builders are active. This data shows that sales have fallen 22% if you compare sales over the last 12 months to the prior 12 months. On a straight year over year comparison, the decline is much more.

    Mortgage Bankers Association (MBA) Data: The MBA Seasonally Adjusted Purchase Application Index, which is a measure of the number of people filling out loan applications to buy a home, is down 18% from its peak in September 2005.1 With presumably more applications being filled out by borrowers who now have to shop around for a loan, how could sales have fallen by less than 18%?

    Builder Data: The nation’s two largest homebuilders, D.R. Horton and Lennar, are reporting that orders have declined 27% to 37%, year-over-year. 2 3 D.R. Horton and Lennar have dropped prices significantly in many markets to generate sales, while the resale market has not. How could their sales have fallen more than the resale market, even if new home communities tend to be in fringe areas?

    Realogy Corporation Data: Realogy, which is the parent company of Century 21, Coldwell Banker, and ERA, participated in roughly 1.9 million brokerage related transactions in 2006 compared to 2.3 million in 2005, representing a year-over-year decline of 18% nationwide.

    2005-2006 NAR State Data: The National Association of Realtors state data does show sharp year-over-year corrections in major states: 28% drop in Florida, 24% drop in California, and a 28% drop in Arizona. Our data, however, shows the sales have probably dropped by 34%, 27% and 38%, respectively. The national numbers include some large states where sales volumes have not corrected substantially, such as in Texas and Ohio, but we believe these markets are not very healthy for other reasons. Interestingly, our calculations were tracking very closely with NAR data through 2005, as illustrated above. We did investigate NAR methodology and have found absolutely no reason to believe that the NAR is intentionally misleading anyone, as some have suggested.

    New Home Data: The Census Bureau calculation of new home data does not calculate sales net of cancellations, and cancellations are running much higher than normal right now, which is why the sales numbers overestimate actual sales.

    Here’s a link to the John Burns’ report:


  14. Fred commented on May 29

    TJ…what would you expect from a blog with the word bubble in it?

    Shocker!! LOL

  15. Doug commented on May 29

    Still, isn’t the overview of reality supposed to be interesting partly because reality ought to be an important component of price?

    I am not totally naive about it, but isn’t there any better explanation for the pretty robust rebound of the housing stock prices other than short term market moves do not necessarily reflect reality?

  16. S commented on May 29

    I found this quote and article posted at another website:


    “Daniel Sadek played Orange County’s subprime lending boom like a card shark dealt the ace and jack of spades.

    Just five years ago he was selling cars.

    Then, in January 2002, he anted up $250 for a state lender license and started selling home loans through his company, Quick Loan Funding.

    Over the next five years, Quick Loan wrote $3.8 billion in mortgages, lending money fast – and often on onerous terms – to people with shaky credit.

    Boosted by high fees and interest rates – high even for the subprime industry – Quick Loan’s after-tax profits averaged 29 percent of revenue. In 2005, Quick Loan’s biggest year, profit topped $37 million.

    Sadek used the earnings to live the high life, buying a fleet of Ferraris, Lamborghinis and Porsches, dating a soap opera starlet and producing movies. He flew private jets to Las Vegas, where he gambled with high rollers at the Bellagio Resort.


    Sadek says Quick Loan had to buy back $29 million in loans that defaulted in the first two months. That’s a number that’s likely to grow.

    Today he is $16 million in debt, he says. Sadek says he raised $13 million for Quick Loan by selling his cars and refinancing his Newport Coast mansion, an Irvine penthouse and a Las Vegas condo.”

  17. Mike_in_FL commented on May 29

    The “inventory for sale” problem is key, as far as I’m concerned. I don’t think some people understand just how many “excess homes” we have sitting on the market right now. The 4.2 million unit reading for existing home supply isn’t just up a little bit … it’s almost DOUBLE the level of just a couple years ago and the highest in recorded history. And while new home builders are starting to whittle down supply by slashing prices and cutting back on production, they also have a mountain of inventory to deal with to — something on the order of 150,000 to 200,000 excess units, by my reckoning.

    The chart I put up at the following link speaks volumes, in my view, about the supply problem (it shows single-family home-only inventory, by the way, since that data series goes back farther than the SFH+condo+co-op data the NAR has only been putting out since the late 1990s)


    Bottom line: With so many houses on the market, you simply have to price competitively if you want to get noticed and sell.

  18. 123 commented on May 29

    tj, ooh you scare me with your big grumbling words about sky falling. So what I guess you are saying is that if hubble telescope can’t see bottom then you predict bottom in housing market in many billion years?

    Me thinks that many things can happen before then to prove you wrong. Thank you for yor opinion.

  19. Estragon commented on May 29

    Interesting article from Morgan Stanley looking at the UK and Spanish housing markets to determine factors underlying price increases.

    It suggests about 2/3 of the increase is attributable to demographics, interest rates, etc. (i.e. the usual fundamental suspects), and about 1/3 is attributable to expectations for future increases (i.e. confidence, or the greater fool theory).

  20. Jay Weinstein commented on May 29

    Here’s the thing—the housing market is probably the biggest and slowest moving market there is— transactions take months to happen and time to get reported. Wall Street, on the other hand, is like a shoot from the hip crack junkie looking for a fix every minute of every trading day.

    The pricing bottom will be hit long after sales do I predict—and the effect on consumers’ sense of wealth will also be much much slower than any economist can model.

  21. Deborah commented on May 29

    Whatever happened to all those immigrants who were supposed to buy up all the real estate throughout the US for the next several years?

  22. Greg0658 commented on May 29

    Did you know that the Hubble is incapable of focusing on the Apollo moon landing site due to mirror and optics shortcomings?

  23. Winston Munn commented on May 29

    One frequently overlooked aspect is the tremendous rise in vacant homes on the market. Vacant homes are expensive to maintain in best selling shape, and it doesn’t take many vacant homes that have a couple broken windows and weeds in the yard to make a once nice neighborhood look like a ghetto.

  24. Si commented on May 29

    Great piece Barry, as soon as people started thinking of homes as an investment vehicle with former tech stock returns the writing was on the wall IMHO. Reminds me of the old PM Dawn song lyrics….reality used to be a friend of mine.
    The principle advantage of a home is exactly that, a roof over your head.
    The greater your returns the more risk you are taking on…simple as that.

  25. Dr. B commented on May 30


    I really like your realism in looking at all this stuff. Those who read this and similar blogs knew this was coming; we were ready. But how ’bout a little segment on what’s next? I am looking about (like a lot of people who are with you here) for investing opportunities based on what’s next and so far, I see little prognostication from the very people who warned the housing bubble was done. Any thoughts?

  26. wally commented on May 30

    The points you make about ‘experts’ and bottom-calling are interesting. Obviously there are ‘experts’ who just simply ride for free and there are experts who actually do the math. When we come to the turns the difference becomes obvious.

  27. True Gotham commented on May 31

    Manhattan Real Estate Market Insanity

    No time to blog today because I’ve been insanely busy with clients and Triathlon training(and thank all of you so much who have taken the time to generously donate to this cause!!!). Mostly the former! The market continues to buck…

  28. owlbear1 commented on Jun 1

    People, if you don’t stop paying attention to this problem you are not going to be surprised by it and therefore will not be able to act like victims.

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