"Unexpected Weakness In Home Sales"

"David F. Seiders, chief economist of the National Association of
Home Builders, said the unexpected weakness in recent months had caused him to shave his forecast for housing construction this year. It now shows a fall of 23 percent after a 14 percent drop in 2006." (emphasis added)

I spit my coffee out all over my keyboard when I read that WTF?!? line Thursday morning. Unexpected weakness? Seriously, some of these housing shills are starting to make Baghdad Bob look like a respectable spokesman.

What did the actual data show?

Well, for starters, we see sales of existing homes fell 3.8% -- the fourth consecutive monthly drop -- to a seasonally adjusted annual rate of 5.75 million units. For comparison purposes, this brings us back to the levels last seen in November 2002 -- prior to the ultra-low interest rate driven boom really ramped up.

On a year-over-year basis, June sales were off 11.4%.

Resales of single-family homes fell 3.5 percent to an annual rate of 5.01 million. Sales of condos and co-ops fell 6.3 percent to a 740,000 rate. Total Inventory dropped by 4.2%, a positive development.

The more volatile New Home Sales data are released later Thursday morning.

The media frequently mentions median price in these reports, but rarely explains what it means. I should give kudos to AP for at least making a partial attempt at clarifying the data. It noted "The median [price] is the point where half the homes sold for more and half for less." Ideally, one would explain that this can be skewed by either a drop in low end home sales or an increase in high end sales during the present weakness (and vice versa during the recent boom). 

And while I am handing out platitudes, Bloomberg gave good color on how both the New Home Sales and Existing Home Sales data are assembled:

"Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new-home sales are recorded when a contract is signed. Sales of existing homes account for about 85 percent of the U.S. housing market, and new-home sales make up the rest."

Perhaps this means all those rants were not for naught . . .

>

Sources:
June Sales of Existing Homes Fell 3.8%
ASSOCIATED PRESS, July 26, 2007
http://www.nytimes.com/2007/07/26/business/26economy.html

Home Resales in U.S. Fall 3.8% to 5.75 Million Rate
Joe Richter
Bloomberg, July 25 2007
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abCy7BmqWaYc

Comments

[Johnny Bitc...:]

Your rants make you feel better and that's what's important, Barry.

Here's some random thoughts on the general topic:

1. I think people underestimate the impact of the property tax structure, including the corrupt govt. bodies which are reluctant to reduce assessed valuation on properties. These entities have benefitted from the loose credit used by idiots to pay too much for a house. Now that the bottom is falling out, these corrupt govt. officials will rely on phony statistical studies to justify phony assessments. People went along with the phony assessments as long as they were making money on the houses.......well, that's gonna change....look for tax revolts in the future.

2. When will the bank owned properties hit the market ? I am guessing alot of these banks are not working aggressively to get this crap off their balance sheets. I guess they are just waiting for a tipping point where every idiot corporate bureacrat can agree that the housing market is not coming back and historical price and/or existing debt value means zip.

Earth to banking bureaucrats: Sell that crap. It's not coming back. It's only going to get worse.

3. In Michigan, I talked to a real estate agent that will list your house in the MLS for $200 !

Earth to real estate agents: You are screwed. You better find a way to make a living that does not include being the gatekeeper of the listings. This service is worth pennies, and your phony arguments about adding other valuable assistance is wearing thin. Driving a client in a BMW and pointing at houses, schools, and parks is not a valuable service.

GoogleEarth to real estate agents: You are screwed.

4. Remember the days when stock brokers could make money by cold calling and being the gatekeeper to the listings of stocks ? It wasn't long ago.......and real estate agents should take note. Some things do disappear........and 6% commissions for smiley, happy people in brown jackets is one of them that will go down in flames fast.

5. The issues with the home mix in the median number is a problem for comparability. Another problem is the lack of adjustment for capital improvements. I guarantee that alot of houses selling for the same price as a year ago have substantial capital improvements that are being eaten by the homeowner or home speculator......

Anyone that doesn't think home prices are down 10 - 20 % nationwide is a fool. And that includes many cities where the reported median is flat or up. In some places, I think 25 to 30 % is more reasonable.

6. Even if you are foolish enough to believe that prices are not down, you have to admit inventory is way up. In the end, this is really just an indicator of prices being down.

It's amazing that it takes so long for reality to set in. But it does appear we have reached a tipping point........

With luck, homeowners nationwide will be telling the real estate agents to shut up and take a 2% commision (1% for the selling agent, 1% for the buying agent). These days are coming faster than they can imagine.

john.

2007 Jul 26 04:28 PM

[brynaw:]

Wow. johnlewing and I (and Barry, too, I'd wager) are in 100% agreement. Is the Apocalypse just around the corner or what?

Ahhh... can't you feel the love? :-)

2007 Jul 26 07:37 PM

[mbeget1:]

Well johnlewing, brynaw and doubtfullly Barry, what is your careers and how do you make money? You only see the end result of a real estate commission. You don't see what goes on from A-Z. a) Building client relationship for a sell or a buy( not always easy). b) once you have a deal waiting for it to close 30 to 90 days unless the deal dies for one of 52 reasons. c) Now with short sales and REO's and banks making stupid decisions in another state than the property that is being sold taking 3 months or more to respond to an offer. You are sooooo right, realtors do make tooooo much money! Oh by the way, I work for a discount comission company!!! Before you say too much about a subject you should more fully understand it so as to appear thoughtful at least.

God Bless,

Mark

2007 Jul 27 02:02 AM

[David Levin:]

Isn't Baghdad Bob already working for the NAR?

2007 Jul 27 09:13 AM

[C. Fischer:]

mbeget1,

One of the most telling signs of someone being wrong about something (aside from spelling and grammatical mistakes, of which you have several in your first sentence) is that is that they attack the original authors credibility ("what is your careers") instead of offering a logical counter argument (which, in this particular case, there really isn't one.)

Brokers add almost no value, probably a negative value for anything but the most novices of homebuyers (because both buyer and selling brokers are primarily interested in closing the deal as cleanly and quickly as possible, usually without regard to price.) On a $250,000 house, you really think the little paperwork you do is worth $15,000? I know, this is where you go into saying that its split between both agents, so you're only looking at $7500, and your company gets half of that (your fault for letting that happen, not mine) and that you have to pay taxes on the $3750 (oh gee, really?) and that after all that you only get $2000 so you're not overpaid. This is what we call a logical fallacy.

I agree with the above posters. You're drastically overpaid, unnecessary, and the internet is going to eventually do to you the same thing it did to full service stock brokers and term life insurance premiums.

Oh, and if we're going to criticize career paths (hey, you started it!) well let's just say that most residential brokers I know were not at the top of their classes or hold many impressive degrees, etc.

2007 Jul 27 02:36 PM

[Fred W:]

So true...the slide has only just begun.
The write offs for the large tract builders have only just started to surface...huge losses on the horizon. The funds will be trying to catch a falling knife--they see "cheap" land now--I don't see it as cheap yet...another 30%-40% off today's land prices is not unrealistic.

2007 Jul 27 02:54 PM

[Johnny Bitc...:]

The nail in the coffin for real estate brokers has already been pounded in:

They've lost control of the MLS and discount brokers will now list your house for $200. Anything they get above that for snapping photos, taking phone calls, showing the house, and filling out the required paperwork should be minimal (1-2% maximum split between buying and selling agent).

Beyond that their job description will change.....they will simply become deal mediators and paperwork filers. It's a valid service, just that it's not worth more than $50 per hour - this should translate to a very sharp reduction in salaries for successful agents.......for the newbies it will just be the way the world is.

It is quite possible that agents add negative value a they are simply incented to get a deal done as quickly as possible to get access to their undeserved commission. The commission structure is ridiculous and will be eliminated within a few years.

This will drive many real estate agents to become furniture "agents", used car "agents", or some of them may be so used to the brown polyester jacket they will feel most comfortable working for UPS.

john.

2007 Jul 28 10:33 PM