Housing Deterioration Continues

"The housing market
has continued to deteriorate throughout the second quarter" and "the
supply of new and existing homes has continued to increase, resulting
in declining home prices across our markets.

As Lennar looks into the third quarter and the
rest of the year, it continues to see weak, and perhaps deteriorating,
market conditions’ and expects a third-quarter loss."

Lennar President/CEO Stuart Miller



Case Shiller Home Price Index, Year-over-year price changes
Source: S&P


As the chart above shows, the S&P/Case-Shiller House Price Index fell the most it has in 6 years. Dropping 2.1% y/o/y, this is the index’ 4th consecutive down month. Home prices are still up 26.5% from 3 years ago, and 8.8% from 2 yrs ago.

CNN/Money reports that "While sales picked up from the early part of the year, they tumbled
15.8 percent from May 2006 – marking the 18th straight month of
year-over-year declines."

This index differs from the pricing data from the Office of Fed’l Housing Enterprise Oversight (OFHEO) in that it includes the homes in all price ranges — OFHEO pricing data only covers "conforming mortgages" which doesn’t include most of the upper end of the housing market.

Meanwhile, Home Inventory continues to rise: The WSJ reported the number of homes on the market "increased 5% in May, adding to a glut
in many parts of the country and threatening to push prices lower as
the housing market keeps tumbling."

This amounts to a 15 year high of home inventory. And, all this inventory is not going away anytime soon. At current sales levels, the annualized housing sales rate has slipped below 6 million — 5.99 — a four-year low.


Breakdown of the S&P/Case-Shiller House Price Index by region:

Index – April 2007






v Apr07

v Apr07

v Apr07




































































































Table courtesy of HousingDerivatives


Housing: Everything is fine, nothing to see here!
Video (15 second commercial pre-roll)


A Hodgepodge of Declining Growth Returns in Home Prices
S&P/Case-Shiller® Home Price Indices
June 26, 2007 09:00 AM EST PDF

Glut of Homes Puts Pressure on Prices; Inventory Rises 5%
WSJ, June 26, 2007; Page A2

S&P/Case-Shiller Home Prices Fell 2.1% in April, Index Shows
Courtney Schlisserman
Bloomberg, June 26  2007

Lennar Swings to Quarterly Loss, Sees Continued Market Weakness
WSJ, June 26, 2007 7:03 a.m.

No sign of life yet for new home sales
Chris Isidore
CNNMoney.com, June 26 2007: 11:10 AM EDT

Inventory of homes for sale hits 15-year high
Existing-home sales off 0.3%; 5.99 million annualized rate’s a four-year low
Rex Nutting,
MarketWatch, 4:55 PM ET Jun 25, 2007

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Isaac commented on Jun 26

    Just heard a zinger on CNBC- the realty lady said, upon reporting that homebuilding in the West was down, “The West, which has been a tricky market, down %1.9. That’s, you know, there’s not a lot of land out there, so not a lot of building going on…”

    How does one get that job?

  2. Barry Ritholtz commented on Jun 26

    Not a lot of land out there?

    Its the part of the country with the most undeveloped land!

    California is obviously the exception…

  3. j d ess commented on Jun 26

    my synopsis of the video:
    “it is definitely a buyer’s market”…”it’s a buyer’s market”…”this is the best time to buy”…”prices will remain very consistent, so it is a very good time to buy”

    why do rich people think their houses are immune from price deterioration?

    “well, it’s the amenities…”

    thank you for your lack of insight, paul.

  4. GerryL commented on Jun 26

    The CEO of Coldwell Banker sounds like David Lereah. It is always a good time to buy.

    I have heard a rumor that after leaving the NAR David Lareah is now traveling the country with the W.S. Walcott Medicine Show.

  5. Shrek commented on Jun 26

    Who holds all this bad debt?

  6. joe commented on Jun 26

    Can we stop talking about housing bottoming and start talking about how it’s abyssing? Seems more appropriate given the circumstances…

  7. winjr commented on Jun 26

    “OFHEO pricing data only covers “conforming mortgages” which doesn’t include most of the upper end of the housing market.”

    Also, OFHEO includes appraisals based upon refinances. Case-Shiller includes only … what? … 20 markets? NAR reports only median prices. None are as comprehensive as we might like.

  8. agliga commented on Jun 26

    “As the chart above shows, the S&P/Case-Shiller House Price Index fell the most it has in 6 years.”

    Actually the chart, which shows year-over-year changes in the Index, indicates that it fell for the first time in 11 years and the most it has in 16 years.

  9. MarkTX commented on Jun 26

    Housing down?

    nothing like the usual BUY program to move the Dow up a 100.

    move along…nothing to see here.

  10. Sherman McCoy commented on Jun 26

    I’m bothered so I will rant… Apologies in advance for the length of this comment.

    Look at the area under the curve. The “positive” area extends from 1996 to 2007, and it’s huge. The area is a graphic representation of the extent of home price increases over this period.

    By comparison, look at the “negative” area that has formed over the last few months, indicating home prices decreases. It’s tiny! Just a little bit of “down” following ten healthy years of “up”!

    Media have been calling this a “housing debacle”. Yeah, right… Comparing the extent of the price decreases so far with the cumulative extent of price increases since 1996 shows that this is a “blip”, maybe barely a “correction”. Keep in mind that homes have become much more liquid over the past decade or so, so we are justified in bringing in a little bit of equity terminology and standards (e.g. 10% as a “correction”).

    So if housing from 2006 to now is a “debacle”, then what would it be if prices decrease- even for a short time- at the same magnitude that they increased for all of 2003-2005 (12%+)??? What would the media call THAT, having already used up most of their poignant negative terminology? And hasn’t the media’s use of this heavy-duty negative wording given the impression to the public that this, right now, is the worst it can get… and thus lead the public to exclude the possibility of, say, 12% annual declines in home prices for a year or two.

    And why is that not feasible? Home prices increased at that sustained rate for three whole years, so there’s no reason why it can’t happen in the negative direction. You can look at the evidence yourself and make a prediction, but you have to admit that such a negative downturn is a non-negligible possibility.

    Here’s a much more reasonable description of what’s going on: Since 2006, we’ve had a SLOWDOWN in home price appreciation. For the last four months, we’ve had a DOWNTURN. The whole thing so far is a mild CORRECTION.

    It ain’t a debacle in the least… yet!

    If you want to talk about the subprime mortgage problems, which might be appropriately labeled a “debacle”, then fine. But keep that separate from the home price issue. There might be some spillover, but the subprime issues are more due to aggressive lending with little regard to proper underwriting standards. The whole subprime unwinding has been exposed because of a mild correction in home prices, not because of a “crash”. I’d hate to see what the result of the Wall Street Subprime Wizardry would be in light of full-blown, sustained decline.

  11. wally commented on Jun 26

    I wouldn’t agree that the up years were ‘healthy’ because I think they included speculative excess.

  12. JAC commented on Jun 26

    Based on past housing long-term trends (dangerous thinking in this “new era”, I know), wouldn’t we necessarily expect a decline in housing prices until the point at which housing is roughly trending with typical inflation again?

    Thus, the large speculative boom should lead to a smaller-by-a-factor-of-inflation anti-speculative crunch, until we have the two forces in alignment once more – either via a crash or a slow many year bleed off. Housing, to a point, has always been an oscillating function around the inflation trend. The degree of oscillation varies (Florida in the 1920s, California in the late 80s off the top of my head) with the amount of speculative excess or lack thereof, but it always reverts to the mean.

    Of course, complicating this is that the inflation measure from the fed isn’t really measuring inflation well, so you have to do a bit of a back of the envelope calculation to figure out the inflation rate. Hopefully, we can be more accurate than random guessing.

    Thus, anyone claiming the housing market is robust at this point is probably insane. On the flip side, I might argue the previous speculation is “healthy”, because it’s going to help weed some of the weak ones out of the market…

  13. Bob A commented on Jun 26

    There are a lot of people out there still paying twice as month in interest on their home as they would be paying to rent the same home. Their reasoning for jumping into that deal in the first place was the expectation of appreciation on the asset. They will hold out for awhile, but sooner or later, they will come to grips with the reality that paying $5000/month for a house they could rent for $2500/month while it’s value goes sideways or down just does not make sense. Maybe there are not enough of these to affect overall prices, and maybe there are. These are not people like you who have thousands or millions in equity or IRA’s. Working people who were allowed to get into a home based on unrealistic speculation that home prices would continue to appreciate at an unreasonable rate indefinitely.

  14. KirkH commented on Jun 26

    Wow, what complete and utter nonsense in that video. Housing was national during the run up but now it’s local?

    The fact that you see this stuff on WSJ, CNBC and even Bloomberg on an almost daily basis makes me a bit nervous. Why would they be this blatantly misleading in the face of mountains of data?

    CNBC talking heads were blaming weather and the media yesterday. I’m at a total loss.

  15. Bob A commented on Jun 26

    “Why would they be this blatantly misleading in the face of mountains of data?”

    Ya think they mighta learned that trick from certain people in our nations capitol?

  16. Seattleite commented on Jun 26

    For those of us waiting to buy, this downturn is not quite everywhere…..not yet anyway…..oh well….

    Seattle-area prices for existing houses in April were up 1.3 percent from February and 9.6 percent from April 2006, according to Standard & Poor’s S&P/Case-Shiller Home Price Indices.

  17. ideogenetic commented on Jun 26

    {Why would they be this blatantly misleading in the face of mountains of data?}

    They are the remaining guardians of the weight-bearing card in our house of cards economy. They are trying to keep the finger flick of market psychology from shifting any further.

  18. michael schumacher commented on Jun 26

    the denial is at record level IMO…..

    My question is where do these spinsters take it from here? It’s not like it will be improving anytime soon and we still have this election cycle that is rapidly approaching, closer than we all think.

    Two over 100pt reversals in two days……yep come on in the water is fine. See first sentence..


  19. Kevin Depew commented on Jun 26

    By just about any measure the results were worse than expected.

    -The company reported a 28% drop in home deliveries year-over-year.

    -Revenue fell 37%, the most in at least 10 years, Bloomberg said.

    -New orders in the quarter declined 31%.
    The average sales price of homes fell more than 7% year over year.

    -The cancellation rate came in at 29% – among the reasons new home sales figures (see Number One, above) are so deceiving.

    -It is quite disturbing that Lennar has made absolutely no progress on the company’s cancellation rate this quarter.

    -Back on April 7 the company reported a first quarter cancellation rate of, again, 29%.

    -In April’s 10-Q filing, the company said:

    “Although our cancellation rate in the first quarter of 2007 increased compared to the first quarter of 2006, we focused significant efforts on reselling the homes that were the subject of canceled contracts, which, in many instances, included the use of higher sales incentives (discussed below as a percentage of revenues from home sales), to avoid the build up of excess inventory.”

    And what about those sales incentives?

    -The company reported higher sales incentives offered to homebuyers of 9.6% in the first quarter of 2007, compared to 4.9% in 2006.

    In this quarter the company reported sales incentives surged to $43,700 per home delivered, compared to “just” $24,700 per home delivered a year ago.

    Cancellation rates are not making progress, and the company is resorting to a stunning increase in incentives.

    The company is even as we write this on a conference call, saying, among other things:

    – The market has “eroded” over the past six months

    – The subprime market needs to be “replaced”

    – The company is facing a “great deal of downward pricing pressure.”

  20. Bob A commented on Jun 26

    Seattleite… We do have quite a few houses new and resale in the Kirkland area that have been reduced in recent weeks in the range of 10% or so. Buyers in the $1m-$3m range have a lot of options.

  21. Winston Munn commented on Jun 26

    This economy has been sustained on housing inflation created by cheap debt, and much like a steam-engine freight train that runs on dollars, when there are no more new dollars to pour into the furnace the locomotive stops.

    That is the debacle in housing – the great engine has run out of cash for fuel.

  22. Zephyr commented on Jun 27

    Cheap debt was a secondary factor.

    If cheap money was the main cause of the housing price increases then we would have seen prices rise simultaneously at about the same pace in all parts of the country. However, the various local markets had dramatically different rates of price increases – even with the same available interest rates.

    Today we see some areas rising while others decline – all with the same interest rates.

    The cycle happens with or without cheap mortgage money. History shows this to be true.

  23. halbhh commented on Jul 1

    Several posters got pieces of this puzzle, but I’ve not seen 2 important pieces. When I state these 2 don’t imagine they are the only 2 that matter! You have to put *all* the pieces together to have the real picture. Some pieces already mentioned above that are central and powerful: Credit boom (cheap debt/money supply, “locomotive” (like that one)), inflation rate over the years (like 2001 to now), expectations of rising prices (this one is so powerful, and now it’s over). Of course the ratio of price to income is involved in the reversion to mean suggestions (but this needs what I add below).

    2 factors to add in:

    Supply has a distance component that is central and essential. You can get a $140K house that’s great in the US, but it’s not near that great job….. The reason prices are high in big cities is about distance to work precisely, and what the wages are in that center. Just the density of people and talent creates synergy that increases the ability to create value and get paid higher wages, and in turn the distance one commutes determines the price-demand for housing. How many people would like to live there? This is simple enough, but what’s missing is the point that the increase in value of limited assets (land near centers), is necessarily directly porportional to the total wealth in that area. That’s about population and wages, and of course productivity and GDP/person, etc.
    In short, the US has more people and they are more productive, there’s more wealth, and so the centers (cities) necessarily must have land prices that reflect that available wealth. This factor is more dominate than all the others.

    2nd point is simply that if it’s possible to create wealth effectively in a less crowded area, then people there get relative bargains on their land prices they must pay.

    Houston is a fine example.

Posted Under