Existing Home Sales Data Yields Good News Trifecta

Tuesday we reviewed a dozen areas where home prices are rising. Wednesday yielded the release of home sales data with three more significant pieces of great news.

1. Sales of previously owned homes rose for the second month in a row in May. The improvement was 2.4% better than the sales rate in April.

2. Inventories of existing homes continue to decline rapidly. Inventory levels are now below the 10 month mark for all existing homes for sale. That level is down over 15% from a year earlier. There is now only a 9 month supply of existing single family homes on the market.

3. What may be the best news in Tuesday's home sale data is the fact that the number of distressed sales has drop precipitously. Earlier in the year close to 50% of sales were distressed. May's data shows that level down to 33%

It is no wonder then that home prices in many cities are beginning to recover.

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.

The most unreported statistic is that foreclosures accounted for approximately 33% of all sales, down from the more recent average of 45% to 50%. This is most likely a result of the moratorium put in place at the beginning of the year which has now concluded.

Looking forward and appreciating many banks are sitting on their own piles of inventory due to the moratorium, we can only expect further price declines.......maybe accelerating declines.....which 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 existing homes sales are around 4.7 million units. Housing supply is certain to increase.

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

Jun 24 06:46 AM

[Jimmy K:]

9 months inventory of homes for sale??? think again, brother... there are so many hidden foreclosures people like you can't even begin to imagine the problem we are facing... Banks? sure, lets list (1) foreclosure for sale per month- we'll get multiple bids; bidding wars will ensue... All the while they are holding hundreds of thousands of homes secretly off the market...

Jun 24 07:48 AM

[Bruce Krasting:]

These graphs argue your case. Ok. but.

Who cares if in little Rock the price went from 123k to 125k?

There are very few houses in Boulder at this price point. Go check what the 1mm and up homes are selling for. Go to nearby Long Mont where they still can't sell homes.

Looks like a nice recovery in Boston. That is just wrong. The market is flooded. more expensive homes are not getting sold and all of the vacation homes are just sitting there.

Reston VA is up 1 1/2%?? that is just wrong. Ask the folks in Reston. Ask Ed Andrews of the NYtimes. He lives and wrote about his RE problems here.

I understand that you are the good news economist and you have to look for good news. There is very little good news in your graphs. If there is any it is about home values that are not representitive of our problem. Try to sell an $800k place in any of the areas you mention. Can't be done unless it is a foreclosure at foreclosure prices.

Jun 24 09:38 AM

[Cold Reality:]

"1. Sales of previously owned homes rose for the second month in a row in May. The improvement was 2.4% better than the sales rate in April."

This is ONLY because the statistic was contrived by contrasting the actual data on sales for May with "consensus estimates" (influenced by propaganda disseminated by real estate agents) that represents, at best, a specious data point.

On the contrary, in fact, existing home sales were DOWN 2.97% on a year-over-year basis.

This should serve as a cautionary example of how the use of selective, contrived statistics can cause a statistical value that actually went down, appear to have gone up.

"2. Inventories of existing homes continue to decline rapidly. Inventory levels are now below the 10 month mark for all existing homes for sale."

The "existing homes" referred to are only the ones currently--or still--on the market, listed by real estate agents. It ignores the "existing homes" that are: A. No longer on the market due to the frustration of sellers who are unable to sell at the unrealistic prices at which the listing real estate agent has manipulated them into setting; B. Not on the market because the sellers realize that putting a house on the market at this point is an exercise in futility, frustration, financial self-immolation, or all three, or; C. Houses "For Sale By Owner" or not listed but nevertheless held by owners who would sell their home if market conditions would enable them to do so. In other words, another misleading statistic that fails to account for all of the factors that enter into the equation.

"3. What may be the best news in Tuesday's home sale data is the fact that the number of distressed sales has drop precipitously. Earlier in the year close to 50% of sales were distressed. May's data shows that level down to 33%"

This might indeed be the best news if it were true and meaningful. It is not true and meaningful because there has been a moratorium on foreclosures; banks and mortgage lenders have withheld distressed properties from the market, for all of the reasons stated above and others; and the market is momentarily between spikes and peaks of interest rate resets of the better grade (the so-called "Alt-A" and "Prime") mortgages, which without question will result in a dramatic resurgence of distressed sales. Not only is the subject data transitory and misleading, but it is a sad possibility that, by the latter part of this year, most if not all real estate sales will be of the "distressed" variety.

Jun 24 02:57 PM

[Jeff:]

NEWS FROM ON THE GROUND.......

I have been buying condos in Las Vegas for 10 months now, and for the first time, I have been out bid on the last six property's. It's like money is being poured into this market.

Last fall, I could buy a 2/2 in the $40,000 range, now I can hardly touch it for $60,000 plus.

I am still talking about foreclosures, but guess what folks, they are being snapped up as fast as they come on the market.

Money is chasing a good investment, you couldn't build them for that price, and they were returning a nice 10% plus.

Oh shit, forget you heard about this, I don't need to see your sorry ass in there bidding against me.

Jun 24 09:00 PM

[The Good Ne...:]

@Jimmy K,

I am just not buying that theory any more. I've heard the claims of all these bank owned props sitting on the sideline, but in several of these markets, I see no sign of the banks starting to list them. (if indeed they are all there)

In fact what I am hearing are more stories like Jeff's. The low end of the market is on fire and now the mid market is following suit...

@Bruce Kasting,
Have you really investigated what is happening in Longmont or Boulder? I seriously doubt it. I know those markets well (I live and invest there!) Time to give a call to your agent over there. Sorry, if you are in the market to buy under 200K in a decent neighborhood, you are out of luck my friend. Decent properties are receiving multiple solid offers again. As Jeff indicates, you're gonna get outbid in the Vegas or Boulder markets if you don't make a strong offer.

Thanks for the news on the ground Jeff.

Any other agents or bank officers out there that can confirm or deny the rumors of all these bank owned properties sitting on sideline waiting to be dumped on the markets in such a way that prices will be depressed? So far I have not seen that theory come into play anywhere.

GNE

Jun 25 08:57 PM

[Jimmy K:]

@ Good News; I found it hard to believe too... that a bank would foreclose on a property and then let it sit vacant, rotting in the Florida heat. But it has. In my neighborhood; on a grand scale... I've watched the homeowners move out. I've seen the foreclosure notices taped to the door. Not one house; 6 homes in my small neighborhood. All vacant. No for sale signs. Just a lockbox on the door. For over 6 months... when RealtyTrac says 600k forcolsures off the radar- I have to think that may be a low number; possibly much higher than that. I like your premise- only reporting on good news- but sometimes there isn't any...

Jun 26 10:41 AM