Existing-Home Sales Fall to 10 Year Low; Shadow Inventory Looms

Another month, another new low: Existing-home sales resumed its fall. The ugly details follow:

Sales of single-family homes fell 3.2% to a seasonally adjusted annual
rate of 4.27 million, the lowest since January 1998. Sales of condos
rose 1.7% to an annual rate of 590,000, the highest since November

• All existing home Sales fell 2.6% (SA) month-to-month to an annualized rate of 4.86 million units in June. Thats a drop of 15.5% from a year ago in June 2007.

The inventory of unsold homes on the market rose 0.2%
to 4.49 million, an 11.1-month supply at the current sales pace, the
second-highest inventory level since the mid-1980s.

• Today’s data is the cycle high in inventory overhang, and the cycle low in sales and prices;

The median sales price fell 6.l% in the past year to $215,100.  Home
prices nationwide have fallen 18% on average from their July
2006 peak, according to the S&P/Case-Shiller index of 20
metropolitan areas;

Purchases are down by about a third from a record of 7.25 million reached in September 2005.

Short sales and foreclosures accounting for approximately one-third of transactions.

That last data point is the most important one, so let’s review it:  Fully one third of all existing sales are of distressed properties.This includes defaults, foreclosures, work-outs, walk-aways, etc.

Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA. 

Because  foreclosures aren’t included in the data at all (they are not
sold through realtors’ MLS service) it is likely that the total inventory of houses for sale is APPRECIABLY HIGHER THAN REPORTED.

I expect we will be hearing more about the Shadow Inventory over the next few quarters . . .

   
      

>

Exitising_home_sales_june_08

courtesy of Barron’s Econoday

>

Sources:
Existing-Home Sales Down In June
Washington, July 24, 2008
http://www.realtor.org/press_room/news_releases/2008/ehs_down_in_june

Sales of U.S. Existing Homes Fell to 10-Year Low
Bob Willis
Bloomberg, July 24 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=awApxYbP2hwA&

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What's been said:

Discussions found on the web:
  1. Jeff commented on Jul 24

    Looks like Goldilocks to me! SRS ETF up nicely today…..

  2. DL commented on Jul 24

    All during 2007, the permabulls kept arguing that “housing is only 5% of the enconomy”.

    “Housing is only 5% of the economy”, so no reason to worry.

    Does anyone know where this number came from?

    (Just curious).

    ~~~

    BR: The statement is somewhat confusing — the 5% figure reflects new home construction contribution to GDP — not existing home sales.

    The average growth of GDP since 1947 has been 3.47% per year. 4.6% of that growth has originated in residential investment (new home construction).

    Merely transferring title adds litle to GDP (RE commissions, mortgage writing, etc.)

    However, as we saw from 2002-06, lots of activity in home sales leads to other economic activity (durable goods, refurbs, renovations, etc.)

  3. Bob_in_MA commented on Jul 24

    Barry,

    There has been some discussion about foreclosures on the MLS over at CR. My understanding is most REO is listed on the MLS and is sold by RE brokers, some of whom specialize in REO sales.

    But there are exceptions, and certainly an initial period when foreclosure has occurred but the house isn’t listed yet. Banks are also simply abandoning some very low end houses in depressed areas of rust belt cities.

  4. cynicalgirl commented on Jul 24

    The banks are apparently overwhelmed by this. There’s a foreclosed house in my neighborhood that was sold last November and is still listed in the bank’s name. Wells Fargo is at least 8 months behind on their paperwork.

  5. Mark E Hoffer commented on Jul 24

    “Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA.

    Because foreclosures aren’t included in the data at all (they are not sold through realtors’ MLS service) it is likely that the total inventory of houses for sale is APPRECIABLY HIGHER THAN REPORTED.

    I expect we will be hearing more about the Shadow Inventory over the next few quarters . . . ”

    Good tag BR..

    It’s amazing that, seemingly, every news release needs to be accompanied by Anti-Spin–thanks E. Janszen @ http://www.itulip.com

    BR,

    you are, still, one of the, all too, few that cares enough to parse the HeadlineNews to be able to communicate the full frame of events..

    I’m thinking that you may be selling yourself short by appearing on narrow aperture outlets like CNBC & FBN, et al..

    This, of course, needs to weighed against the advent of Internet2.
    http://shibboleth.internet2.edu/
    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Internet2

  6. malabar commented on Jul 24

    So are we done with $300 billion on the bailout – courtesy Frank/Dodd/Paulson/Bernanke?

    Noooooo – this is just the deposit. The real payments will be coming in many supplementals – you know to keep it off balance sheet!

    When does the bond market crack?

  7. Steve Barry commented on Jul 24

    Yet, shameless CNBC is desperately looking for guests to call a bottom. They have two monkeys on now, one is actually calling the bottom…the other says forecasts are way too bearish, but not calling exact bottom yet. Personally, I trust Shiller much more than those morons. His chart is down to 170 now, so another 30% down at least geniuses. What do you expect from GE’s propaganda arm?

  8. ELS commented on Jul 24

    I live in a 64 unit condo complex in the OC. There have been two foreclosures in my complex. Both have For Sale signs in front, and neither appear on the MLS. It really makes me wonder how many more homes are out there.

  9. bluestatedon commented on Jul 24

    This makes no sense… there is no recession and besides it’s over and it wasn’t that bad anyhow.

    This must be Obama’s fault. Or something.

  10. Steve Barry commented on Jul 24

    Yet, shameless CNBC is desperately looking for guests to call a bottom. They have two monkeys on now, one is actually calling the bottom…the other says forecasts are way too bearish, but not calling exact bottom yet. Personally, I trust Shiller much more than those morons. His chart is down to 170 now, so another 30% down at least geniuses. What do you expect from GE’s propaganda arm?

  11. Winston Munn commented on Jul 24

    It is difficult to imagine any outcome that does not reflect a funhouse mirror’s image of the Japanese collapse – the U.S. banking system is basically insolvent – those who have faith in level 3 assets retaining those values in exchage for real assets need to put down the Kool Aid.

    With demand from a cash strapped U.S. treasury, there is no way both bonds and equities can rally – and the most likely scenario is both will still fall.

    The really ugly reality is the possibility of a downgrade of U.S. debt.

    Welcome to the banana Republic of U.S.A – ex US.

  12. Steve Barry commented on Jul 24

    I must now give credit to CNBC for putting Bill Gross on who blew to smithereens the hopes of a housing bottom…said equivalent rent ratio is like a P/E and it is still about twice what it was in the 80s. Burnett seemed quite deflated.

  13. Steve Barry commented on Jul 24

    Any thoughts on UBS criminal case? On Wamu?

  14. Steve Barry commented on Jul 24

    Any thoughts on UBS criminal case? On Wamu?

  15. Sue Herrera commented on Jul 24

    Yes…Wamu down 18%, well off its lows.

  16. AGG commented on Jul 24

    Eleven point one month inventory of unsold homes? Based on the average buying rate for the last (HOW MANY?) years? That figure is wrong. The rate of buying is below the rate of selling so there isn’t any reliable way to project inventory. When a dam fills up you can tell how far back the lake will extend by the height of the dam. Does anybody know how high this “dam” is?

  17. AGG commented on Jul 24

    NVR is reflecting some reality today (it’s going down, down, down). I wonder what the chumps that bought in the last three days were thinking? Or was it discount window 2% loan money they planned to have us (as in US taxpayer) pay back when the stock tanked? What a racket! It’s like paying a doctor to operate on a dead patient. Hold on to your wallet, folks.

  18. DL commented on Jul 24

    Steve Barry @ 2:19:08 PM

    Thoughts on UBS criminal case?

    Yeah, Andrew Cuomo is planning on running for governor of NY.

  19. Brendan commented on Jul 24

    AGG, good point, but unless I’ve been understanding this wrong for a long time, the 11.1 months refers to the assumption that if no new houses were to go on the market, the inventory would take 11.1 months to exhaust.

    The interesting thing I’m seeing, which very much relates to this, is that houses have come off the market without being sold. So people, myself included, are riding out the storm and sitting on properties. If those houses were listed, the problem would be even worse. This just tells me that when things do start to recover, that recovery is going to take a looong time before things return to “normal” as those lying in wait start putting for-sale signs back up. Personally, I wanted to move (out of state) last summer, but saw that it wasn’t a good time (better to keep my seniority status at my current job then get a new one when layoffs are on the horizon), so I’m putting off that plan for a few years. I never listed on MLS, but I did have the house for sale for a while. Across the street from me, a house has been posted since the peak of the market when a real estate agent bought it to flip. Now, years later, and he’s pulled the sign down and the house continues to sit vacant without the sign. No doubt that sign will be going back up when the market recovers, but it’s going to be a while.

  20. Chris D. commented on Jul 24

    I’ll start sniffing around this market when the median falls below $175K. Most houses in most places are worth no more than that.

  21. babygal commented on Jul 24

    It’s a good thing Cramer was on Regis today telling everyone that now is the best time to start buying houses again-multiple homes.

  22. Michel Caldwell commented on Jul 24

    B.R.:
    Unless I’m mistaken we are approaching the end of the summer selling season. If that is the case, you might start posting month on month sales . You know, like the Realtors like to do at the beginning of the season. We need a little spin now and then….

  23. AGG commented on Jul 24

    Brendan,
    I applaud your thinking. Added to the “problem equities” like houses that flop instead of getting flipped are the municipal and county tax dictators. These people don’t understand the concept of lower property assessments. I’ve got a neighbor selling his house for $389,000. A couple of years ago he could have gotten that. Now it’s a fantasy. His property taxes are $5,700 a year. So even if his house didn’t require any maintenance (an impossibility) he has to eat $475 a month in property taxes.
    I say enjoy your house but it’s probably not a good idea to plan on making a profit off it.

  24. BelowTheCrowd commented on Jul 24

    DL,

    I’ve linked to this before, but I think the data and discussion inside would answer your question. Ed Leamer of the UCLA Anderson forecast concluded that while housing is a relatively small part of the economy, it also is the largest contributor to booms and busts.

    It’s not hard to see how that might be the case. Even if housing is “only” 5% of the economy in the long run, it routinely sees transaction volumes cut in half during recessions. That translates into rougly 2.5% of the economy disappearing. With long-run growth at about 3%, a serious housing downturn alone is almost enough to push the economy into contraction. (Add in the multiplier effect resulting from unemployed construction, financing and others in the housing biz, and you have full-blown recession.)

    Leamer’s paper is a 60+ page pdf. I have it linked from my blog at http://www.belowthecrowd.com/archive/2008/07/real_estate_pri.html

    -btc

  25. Bob A commented on Jul 24

    Redmond, WA area… quite a few sold signs are appearing in the last few weeks on homes that have been sitting since fall. I expect we will see significantly improved sales number for King County next month.

  26. ron commented on Jul 24

    Shadow Inventory of REO related homes is real and growing. I recently spent 6 weeks looking to buy a REO in my area (sonoma county) soon discovered a internet site:http://www.sonomareo.com/ that listed both the MLS REO and unlisted REO. What I discovered is that the current crop of REO’s was the tip of the iceberg really and that lots of fresh inventory was waiting to hit the market. Also when you factor in the rate of conversion of NOD’s to foreclosure starts it provides a good picture of how inflated the inventory will look 6 months out. Needless to say I decided to wait before buying as prices have quite a ways to go on the down side.

  27. BelowTheCrowd commented on Jul 24

    Barry,

    There’s lots of shadow inventory right around me. Lots of new construction from last year that is still empty, but not currently listed by any broker or on the MLS. I pass by these forlorn luxury lofts and townhomes all the time. Some of them still have a broker’s sign out front, but no MLS listing when I check. Many of them have replaced the broker signs with cheaper signs indicating that they’re for sale, and a number to call. Presumably they are for sale by the owner directly.

    Many of these were constructed with bank financing that typically expires 6-12 months after a certificate of occupancy is issued. Many of these smaller developers will be faced with a choice of selling at a loss and paying off the difference from their own funds (if they have them) or turning them over to the banks.

    Yet around here there’s a huge number of heads still stuck firmly in the sand (or worse). They’re using everything from relatively meaningless median prices (based on a statistically insignificant handful of sales) to made-up rental equivalent numbers to justify the prices, all while more are being added to the “shadow inventory” every day. I hear brokers regularly tell me that after two years of >5% declines, the worst is over, while conveniently ignoring the fact that in the early 90s we had five years of ~5% declines, leading to a 27% median decline. They have no explanation for why he downside is likely to be less extreme, especially after a much greater runup.

    We’re nowhere near the end of this.

    -btc

  28. Steve Dussault commented on Jul 24

    I am an investor in distressed properties and I don’t see very much shadow inventory in my area (Lafayette, IN). Most REOs are sold through the MLS here. Most sheriff’s sales (~90% in my area) result in the bank taking the property back and selling it through the MLS – though there is a delay in this process as some other people commented. HUD takes around 6 months from auction to re-listing for foreclosed FHA loans.

    In principle I agree with Barry that the housing market is in the toilet, but I don’t see much shadow inventory. A bigger phenomenon in my opinion is people that would like to sell, but don’t even bother listing their homes because they realize they could not sell for what they owe on their current mortgage.

  29. brion commented on Jul 24

    “Both have For Sale signs in front, and neither appear on the MLS. It really makes me wonder how many more homes are out there.”

    Tons imo….if tall brown lawns with NO signs at all in SoCal are any indication….
    Mr Mortgage blog has been also talking about this…Banks artificially pumping their balance sheets by not listing or even acknowledging foreclosures….people squatting in their former “homes” for 12-15 months…no payments…no probs…

  30. brion commented on Jul 24

    http://mrmortgage.ml-implode.com/2008/05/30/ca-housing-statsthe-real-story-425-years-supply/

    CA Housing Stats…The Real Story. 4.25 Years Supply?!?

    True Inventory Burn, which is Total Sales less monthly New Bank REO inventory, has been steadily decreasing and in Jan 2008 was a negative number. The past four months true Inventory Burn totaled 21,566 units or 5,392 units per month.
    If the rate of New Bank REO remains steady, (however we already know it will increase to 30,500 units for at least four months out due to the past four months Notice of Default data), and the rate of Total Sales stays at the elevated April levels, given the true Inventory Burn, it will take 51 months or 4.25 year to sell all existing MLS Listed Inventory. This does NOT include FSBO or unlisted Builder or past bank owned REO inventory.
    If the rate of New Bank REO steadily increases as it has for 16 consecutive months and Total Sales do not increase due to rising mortgages rates, tougher lending guidelines, the absence of loan programs, and historical seasonal patterns, then CA has infinite inventory, as the rate of New Bank REO will continually exceed Total Sales as it did Jan 2008.
    If the home prices are not only based upon affordability but supply and demand fundamentals, then CA real estate prices could stay depressed far longer than anyone has predicted to date.

  31. BG commented on Jul 24

    Well…like everybody else I see the markets sold off again today.

    What the hell does the Wall Street crowd want this time??

    Let me rephrase that…what do we have left that they now want?

    Damn…their habit is getting pretty damn expensive!

    Cool it, guys! Go on vacation. Go away!

  32. LALA commented on Jul 24

    Everyone STOP WORRYING!
    Larry Kudlow just said that these numbers are suggesting an important “turn around story”. They suggest according to larry “that housing has bottomed”.
    I want what he is smoking!

  33. Rex commented on Jul 24

    There’s more on the shadow inventory in the quarterly vacancy numbers released today.
    According to Census Bureau, there are about 6 million vacant homes either for sale or for rent.
    These aren’t just teardowns, or houses in the ghost towns of the Rust Belt.
    About 10% of the homes built for owner-occupancy since 2000 were vacant. About 26% of rental units built since 2000 were vacant.
    It’s going to take a long time to work off that glut.

    (And a previous poster was right that some foreclosures would be included in both inventories and sales if they were sold through the MLS. Those sold at auction or privately wouldn’t be counted by the NAR.)

  34. DL commented on Jul 24

    BelowTheCrowd @ 3:24:17 PM

    Hey, thanks a lot for that link. (http://www.belowthecrowd.com/archive/2008/07/real_estate_pri.html)

    I haven’t yet gone through it in detail but it certainly does appear that that 5% number was an oversimplification at best. And the situation may be worse than what is in the Leamer article; it appears that he doesn’t have much to say about the derivatives market, i.e., all of the mortgage backed securities, the leverage associated therewith, and also all of the associated “swaps”.

    I heard this 5% number several times on Kudlow’s show. No one ever questioned it, but someone should have.

  35. Dude commented on Jul 24

    BG wrote:
    Everyone STOP WORRYING!
    Larry Kudlow just said that these numbers are suggesting an important “turn around story”. They suggest according to larry “that housing has bottomed”.

    Mr. Kudlow explains his reasoning in his column at CNBC. But his graphic showed only one year of data, so it didn’t include the Spring 2007 data

    “Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.

    For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.

    And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.

    Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.”

  36. ken commented on Jul 24

    In LA and OC there are multiple offerings on bank foreclosures. The properties sell so fast that to get one you have to bid significantly higher than the minumum the bank wants in order to win the bid.

    It has been this way for a while and shows no sign of letting up.

    Since I already own a house I have given up, after three tries, trying to win one of these at below market. I thought it would be a good investment. It seems that everyone is aware of the deals now and real estate is no longer as ineficiant a market as it once was.

  37. brion commented on Jul 25

    “It seems that everyone is aware of the deals now and real estate is no longer as ineficiant a market as it once was.”

    i totally agree Ken, if by “everyone”, you mean all knife-catchers and born-again christians….

  38. ELS commented on Jul 25

    Sorry to be late to the party, but you have no idea (or maybe you do). I live in a popular and well kept neighborhood of OC in a 64 unit condo complex. Two of the homes have gone through foreclosure, and while they have “For Sale” signs in front, neither of those homes appear on the MLS.

    And because I’m an opportunistic vulture, I have a Foreclosure Radar subscription. Many, many, many of the SFRs that I have tracked as going back to the bank have not appeared on the MLS. It’s really to the point where I’m ready to contact the banks directly to see the homes and make any offers. And they are not all big banks, some are regional credit unions or mid sized banks. I can’t figure out if they are too overwhelmed to get them listed, or if they are trying not to flood the market and make matters worse.

    Anyone have thoughts?

  39. Mark W commented on Jul 25

    Small note, there are (at least in NJ) a lot more FSBO sales out there that never see an MLS listing too. People trying to scrape every penny out that can’t afford to pay a realtor % just listing themselves.

  40. David Davenport commented on Jul 25

    I can’t figure out if they are too overwhelmed to get them listed, or if they are trying not to flood the market and make matters worse.

    The banks are waiting for a sugar plum bailout from the gooberment.

    They may get one, too.

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