US Housing Inventories Reach Record Highs

Housing sales declined less than expected at 1% in April, but inventories grew to record highs. In yesterday’s post about the possibility of an oil bubble, we mentioned how high inventories in housing - the last big bubble - and record foreclosures, are dealing a double whammy to the real estate market. Today we saw just how big those inventories were. There are now 4.55 million single-family and condo units for sale, the most since combined tracking began in 1999, and enough to last 11.2 months at the current sales pace. For single family homes the index stretches further back, and we now have the most inventories - relative to sales - since 1985.

This huge backlog of housing inventory can only depress housing prices further and combined with foreclosures will make it very difficult for financial institutions holding mortgage backed securities to get much value on their holdings. Of course they won’t be the only ones affected, as was seen with Home Depot’s (HD) earnings a few days ago, people are buying less from them as less houses are being bought and refurbished. Then there are the construction companies which have been under pressure since the start of this crisis that won’t be able to pick up as long as there is such an overhang of inventory waiting to be sold. All in all, it looks like the housing market still has a long way to go before it hits bottom and along the way we will see fallout from a lot of the companies who were heavily invested in this last boom.

Naturally, the market is feeling the heat today from the continued housing slump. AIG (AIG) has had its ratings cut by Moody’s to Aa3 from Aa2 on concerns about its huge exposure to US mortgage debt and credit derivatives. In Europe, Airbus was valued below $0 as shares of parent company EADS declined on the back of high oil, the low US dollar, and of course the continued delays in Airbus’s manufacturing and delivery of planes.

Comments

[Just Say Whoa!]

2007:
"President Bush struck a reassuring tone Wednesday about recent turbulence on Wall Street, saying he believes the markets will work their way through the turmoil safely. In his most extensive remarks on a gyrating stock market, he expressed confidence that investors would eventually calm down. ‘’My hope is that the market, if it functions normally, will be able to yield a soft landing,’’ Bush told reporters at the Treasury Department."

STAY THE COURSE!

What could possibly go wrong when we follow George W. Bush's advice? After all, he's got an MBA! From Harvard! And he surrounds himself with smart people (like Doug Feith).

*wipes tears from eyes after finishing laughing*...

Seriously, maybe buying a house in today's market conditions if THE BIGGEST MISTAKE YOU COULD MAKE:
www.arizonahousingbubb.../

www.arizonahousingbubb.../

2008 May 23 04:46 PM

[mlimberg]

Anyone who insists that "Now is the time to buy a House" is both an idiot and a real estate agent.....

2008 May 23 06:43 PM

[mkreisel]

You buy a house when you need one and can afford it.

You especially should buy a house if the equivalent rent is higher.

You gotta live somewhere, don't you?

I prefer my own home over a crappy apartment anytime.

2008 May 23 11:31 PM

[bearfund]

mkreisel, yes, you buy if the equivalent rent is higher. While every market is different, where I live I can rent what would be a $600,000 condo as an apartment for $1700 a month. There is simply no way to finance that (and pay the taxes and insurance) for anywhere close to the same monthly payment, regardless of tax advantages. Oh, and I'm guaranteed that as long as I live here, my rent will increase no more than 60% as fast as the CPI (haha, the CPI! Ain't that great? A made-up number!). In order for owning my own residence to be attractive, prices need to fall by more than 50%. Even without rent control I wouldn't think of buying my home for more than $400k, especially if I had to borrow to do so.

My guess is that a lot of people are in the same boat. Why buy a place for $300k if you can rent it for $800? When cap rates are above the long bond yield, I'd imagine a lot of people would be buyers. But this bust has a long way to go yet.

2008 May 24 12:39 AM

[Griz]

I'm looking to move to So Cal and I'm seeing more and more nice single family Houses are coming onto the market. I guess this is the next step for delusional owners who won't "accept" the offers they have been getting to buy their homes; they must be thinking "I'll rent it for a year or two until prices rebound". I can now rent a $1,000,000 home in Orange County for about $3,500/mo... no matter how I slice it, I can't make the math work to buy. Now is a great time to rent a home.

2008 May 24 08:29 AM

[secmaven]

Just wait until the boomers put their McMansions on the market and the builders finish up their use it (the bank loan) or lose it all right now projects half way to completion. On the supply side we ain't seen nuthin' yet. On the demand side, family formations are in a long term down trend and job growth has turned negative. The only solution that can possibly pull us out of this mess is Izzie Friedman's suggestion that we give all foreigners a green card who will come to the US and buy a house.

2008 May 24 08:59 AM

[Jacko]

I just bought in Salt Lake City....prices in the 350K range have seemingly bottomed...I got sick of the apartment too...I bought a home that was originally purchased for 480K and I got it for 350K. Don't knokw if I got the bottom, but I got it a whole lot cheaper than the first guy who was foreclosed on it.

[e-mail]...

2008 May 24 10:55 AM

[Jacko]

Oh, also, all this bearish sentiment, always means a bottom has been put in. The big news magazines, they're running stories about how bad the housing market is. Its just like at the nasdaq peak...the cover of one of those magazines, maybe Time, stated, "we're a nation of millionaires"...that was the top.

2008 May 24 10:57 AM

[gordon]

Griz- apparently foreclosures are moving quickly in SoCal, we are in Carlsbad, 92011, N.San Diego, I think you should bid 60-65% of asking price on a distressed sale, approach the owner who is renting. Don't forget, Oceanside is only a 20 min drive to Irvine, although not the best zip code, there are pockets of decent neighborhoods, lots of foreclosures.

Jacko- sounds like a good deal. Always think price/sq ft. Almost all new home product is still $300/sq ft, the townhomes here in San Diego. This is WAY TOO HIGH in this environment. If you paid under $200/sq ft you did well, that's kinda my benchmark. $150/sq ft ideal. (2000 sq ft for $300K) Obviously, schools, location influences paying more.

2008 May 24 01:27 PM

[jimsep]

Inventories are going up in part because builders can't seem to stop building. Every transcript I read of a public homebuilder laments the state of the current market, yet is looking for a way to increase market share.
And they are still completing the build-out of communities! Sems like a death wish.
Banks should do us all a favor and stop lending to them for the purpose of new builds for a while. Then the situation could right itself pretty quickly.

2008 May 24 01:46 PM

[gordon]

We work for homebuilders (arch.), Lennar our biggest client, Inland Empire, they are juggling site maps to finish out the permitted lots, where they already have street improvements finished per const. loan.
They aren't starting new projects, but trying to appease the initial phase buyers who fear living in a ghost town, even if it means inserting lower-priced floor plans from other existing communities.

2008 May 24 02:17 PM

[true-lie]

as a senior real estate person i offer the following observations
1, the real estate market is in deep trouble
2. no one attends the auctions
3. the banks wont lend - they dont have any money
4. the banks, states & US is broker - what do we do ??
5. Answer- reduce all public payrolls by 10% good luck

2008 May 24 06:34 PM

[John Pseudonym]

I drive through neighborhoods and see townhomes going up like it's 2005.

Drive to the next neighborhood and the the townhomes that were built a year ago are still unsold...so they build more?

Builders are addicted to the "build it and they will buy" mentality.

2008 May 25 01:20 AM

[nukldrager]

Right secmaven lol

2008 May 25 07:45 AM

[nyka]

Try...as fewer (not less) houses are bought.

2008 May 25 09:18 PM

[rod34]

secmaven: "one" of the factors of the boom specially in the 90's were the foreigners. The 90's had the biggest wave of 'legal' immigration of the century. After that from 2000 to 2007 the subprime machinery targeted illegal immigrants. Do you know why the foreclosures maps from realtytrac and the ones from the census bureau with immigration settlements data, have a high correlation?

In a sense Izzie Friedman's suggestion won't work because, a lot of foreigners illegally in the country already had a mortgage and they are dumping them along with credit cards in the same pace as new legislation is created against them. Want a hint?, look at Arizona and Colorado data.

2008 May 26 03:14 AM