Existing Home Sales Haven't Fallen, Despite Gloomy Punditry

This goes in the category of "the dog that didn't bark." Despite all the gloom in the housing market, sales activity has been essentially flat (well, actually, this measure of sales fell 3% from year-ago levels, but that's pretty close to flat in my book) for the past year. Prices are down, but falling prices have enabled the market to clear. We are not in free-fall; markets are working. Lots of people are losing lots of money as prices fall, but there is still demand to own the existing stock of housing. Lots of people are buying homes at prices that are far more affordable than they were a few years ago.

Despite continued fears (typical quote: "the sales pace will likely come down as a result of the surge in mortgage rates." –Ted Wieseman, Morgan Stanley), the backup in T-bond yields is not likely to derail the U.S. housing market. Current rates on 30-year fixed-rate conforming mortgages are up by three-quarters of a point from their recent all-time lows. Rates on jumbo mortgages are at their lowest level in three and a half years. Not a big deal. Indeed, buyers on the fence should view this as a good reason to act now before rates go higher.

Comments

[CautiousInv...:]

To be complete we should note that YOY sales were down 3.6% and in the same period prices fell 16.8%.

Results were skewed by sales in the West which were up 12% YOY on price declines of 31%

As with new homes, much activity within existing homes has been at the lower end of the price spectrum where buyer are taking advantage of the $8,000 first time buyer tax credit slated to expire at the end of the year.

Looking forward and appreciating many banks are sitting on their own piles of inventory, we can only expect further price declines.......maybe accelerating declines.....that will accompany rising foreclosures.

Foreclosures increased in May by 18% and, if my memory serves me, are running at an annual rate of around 3 million units in a market where exisiting homes sales are around 4.5 million units.

This will get worse before it gets better because of a slew of approaching Alt-A resets, problems in conforming loans and deteriorating employment conditions.

Jun 23 03:53 PM

[Mad Hedge F...:]

Here is one more gloomy pundit. Since I have been pelted daily with predictions that residential real estate has bottomed for the last 18 months, like hail in a Midwestern summer thunderstorm, I feel a public duty to tell you that is just not the case. Now that the state and federal moratoriums are off, foreclosures are accelerating. There are over a million Option ARM and Alt-A loan resets about to hit the fan. Since many owners will not see positive equity in their homes in their lifetimes, banks are seeing more walk always. The run up in mortgage rates from 4.5% to 5.5% has yet to hit the market. Some 18 million homeowners divert 50% of their incomes to pay for housing, double the 25% that is considered healthy, and many of them are losing jobs. While the volume of units sold has rebounded, the action is dominated by speculators, flippers, and bottom feeders bidding for properties at 10-40 cents on the dollar, not exactly a sign of health. Call me when Ozzie & Harriet Nelson come back to the market. I listen to industry insiders call the bottom of the Japanese real estate market for 15 years, until they finally died, and the market is still a fraction of its 1990 high. I thing we are closer to the bottom than the top in terms of price, but closer to the top than the bottom in terms of time. You can take that to the bank.

Jun 23 04:01 PM

[jeandit75:]

"Act now before rates go up" ok smart guy, with what money? Almost 1/5 american is out of work or looking for a job. The access to credit is bad. How the heck can nomal people buy houses when they actually can't pay their credit card and electricity bills? Go figure.

Jun 23 04:07 PM

[Jeff Nielson:]

What NO ONE is paying attention to (including this author) is the news that the percentage of "distressed homes" DROPPED from nearly 50% to only about 1/3. Conversely, while foreclosures and repossessions are SOARING, banks were holding most of those properties OFF THE MARKET.

Foreclosures/repossess... are on track to EXCEED 4 million units this year. Meanwhile, "existing homes sales" are only at 4.8 million (with that number likely to fall). Thus, unless about 80% of all sales are "distressed properties", then all this means is that banks are building up HUGE inventories of these properties which will HAVE TO BE dumped on the market at a later date.

On the new-homes front, the latest figures show new homes SALES of about 360,000 units (this was supposed to be "good news"), while new home STARTS is at 532,000 (which has been going on every month for over a year). How do you EVER get to a bottom with those trends.

People need to educate themselves in order to learn to tune-out the housing-pumpers.

Jun 23 04:11 PM

[Archman Inv...:]

<<while new home STARTS is at 532,000 (which has been going on every month for over a year). How do you EVER get to a bottom with those trends>>

Jeff Nielson: I agree 100% with you and gave you a huge thumbs up!

As I stated in my post: I am an Architect/ Developer and have been involved professionally with this industry since 1987.
I lived thru a terrible housing market in 1989-1991. I would be willing to live thru another 2 years of this if the builders would stop building houses completely and if the government would come in a bull doze a few hundred of these developments sitting empty all over this country, to the ground. We absolutely do not need a single new home built right now!! The builders keep building home because our government keeps bailing everyone out.

It is going to take a very long time to clear out all the inventory at the rate we are going.

Jun 23 04:58 PM

[Donald Ingram:]

Excuse me, but that report sounds just like a used car salesman talking. "YUP! Helluvadeal! Get em while they last!"
The housing market may seem okay in some patches of the country, in others it's still very troubled. Price deflation is still very active and the unemployment picture remains gloomy. Thinking on buying a house? A wise man said "once you have weighed all the angles and find nothing wrong, watch out, you're about to step off a cliff!" Be very careful with your hard earned money.

Jun 23 06:58 PM

[jhartz:]

I have to wonder how California real estate prices will react when the state begins defaulting on some of its financial obligations beginning in July?

Pundits out here in the west are predicting a new wave of of job losses estimated to be greater than 50,000, within a few months of this event happening.

We are sitting in our living rooms out here, watching the news, and wondering when the Governor will call a press conference to announce whatever action he plans on taking.

I would sooner try to catch a falling javelin than try to predict a good price for someone to buy a home with all this economic uncertainty.

To those who believe that hoping is a good substitute for knowing, I invite you to come out to California and pick up some of these bargains we're selling.

There are quite a few speculators buying up multiple properties at distressed prices. Many are foreign buyers who don't have any real understanding about how far property values might eventually fall.

A friend of mine, with forty years in the local real estate business, believes that Southern California housing prices will fall below the 1961 (adjusted for inflation) price averages. That would be a 1,200 square foot three bedroom, two bath home for about $90,000.00 of today's dollars.

Jun 23 09:36 PM

[This Game i...:]

FYI and totally subjective (so don't barage me with a plethora of responses just because you don't agree).

Anecdotally speaking, my friend sells REO properties (on behalf of lenders) in Southern California – and says, “They’re not putting 90% of the non-performing sh*t that’s on their books on the market. They’re just sitting on it and waiting.”

Waiting for what (inflation perhaps?). Reminds me of Japan. BTW we already had the lost decade as well. S&P500 June '99 = 1315. June '09 = 900. It's not a decade, it's a generation.

Jun 23 10:09 PM

[Mr. Ed, Jr.:]

The California real estate market is a complete disaster. There is no point in pretending otherwise.

Record high NOD's (foreclosure in a year or a little more-- a silly moratorium in effect and banks are in no hurry to add to their REO inventory) will flood the market with foreclosures next year...and the year after that.

RealtyTrac says banks across the country are holding 600,000 properties off the MLS, to avoid more damage to the market. CA has a disproportionate number of those withheld properties.

CA unemployment 11.5% and going much higher. I doubt if the unemployed will be buying homes.

CA taxes are going up. The state is in big financial trouble, and everybody in CA knows it. Everybody is wondering how deep the state budget cuts will go and how many will lose their jobs. Also, business owners who do business with the state are very nervous. This is not an environment where people run out to buy a house.

If you buy a home in CA now, you will likely be walking away from it in about a year.

Jun 24 01:12 AM

[Moon Kil Woong:]

Mr. Ed Jr.: Good point. California is a mess. At this rate I wonder if Prop 13 will inevitably go. If so that would be equivalent to a housing market nuclear bomb going off. However, at this rate I don't see how California will ever balance its books let alone the hundreds of municipalities, cities, and counties in the state. They have already raised sales tax to the point all Californians feel we are paying 2 tips not one for every meal (even ones we make at home).

As for overall real estate, as i would say at a card table, "Read em and weep." We have tried $8,000 credits, low interest rates by a Fed and Treasury willing to make our dollar the equivalent of an impoverished African nation, Congress has virually bankrupted the Federal government, the government still allows $500- trillion in derivatives to slosh all over the market without regulation, and everyone is asking Fannie Mae and Freddie Mac to loan more not less and buy up home loan mortages from banks at low rates that will inevitably end up bankrupting them yet again even though the Treasury and Fed said trhe objective of both agencies is to shrink so they don't pose a systemic risk to the system.

If we call this healthy I really wonder if the black plauge is all that dangerous. Don't fool yourself, the small flatline you see is the results of the last people who already locked in their new home loans. Don't expect much more even though seasonally the summer season is the best time for home sales. A flatlined summer real estate market = catastrophe not the other way around.

Jun 24 04:14 AM

[James Quinn:]

All is well. All is well.

theburningplatform.com...

Jun 24 02:05 PM

[mattupp:]

How about giving away those homes in inventory? Gee, we haven't heard any "Homeless in America" stories lately on the state-run media, but we've got that damned "Habitat for Humanity" people taking potential buyers off the market, adding inventory (does the new owner get to flip that new house?). What a great PR stunt would it be for a bank to give away 100 homes in a 100 days - live, next on ABC! Now make it 500 banks... and 12 months of real estate lottery. Throw in free cars from the inventories of GM & Chrysler dealers. Now we're talking clearing inventory! In this way at least some people (other than politicians, banks and "too big to fail" failures) get something from the bailout of the banks and car companies...

And who among us didn't see this headline and get the flamethrowers out? :)

Jun 24 04:34 PM

[GEN X:]

And yet when you ask any foreigner, "If you could move to any country in the world, where would you go?" Just about all reply without a second's hesitation "The U.S."

So if you ask me, we still have got be doing something right, LK.

Jun 24 04:46 PM

[mattupp:]

Whoa LK, take a Xanax, good to see a different p.o.v., but it's not like the UK contributed anything other than pop artists to the world since the Empire crumbled.

I'm not sure how glad international relief agencies are that donations are down, or how glad China is that their biggest investment is in a "downturn", or how glad the EU is to have no one to help back them from a bearish Russia? Go ask India if their programmers and call centers are still 'on fire', or if they are learning a new language yet?

Yes, U.S. citizens (Canadians are Americans too!) are learning a hard lesson and will continue to face this problem for perhaps a long while, but the alternative is...? Not necessarily and optimist here, but a realist - what other market has developed in place of the U.S.?

On Jun 24 02:47 PM LKofScotland wrote:

>SHUT UP WORTHLESS GREEEDY AMERICANS because the GOOD NEWS IS NOBODY CARES THAT YOUR POOR AND WORTHLESS AND IN FACT IS GLAD YOU ARE, especially not while you throw American soldiers under the bus so you can mouth off about how "those people" got theirs while you didn't.

Jun 24 04:51 PM