Home Prices Fall For First Time in Decade

by: Barry Ritholtz

The National Association of Realtors announced Existing-Home Sales today. The data is consistent with our expectations of softening sales and prices and increased inventory:

• Total existing-home sales slipped 0.5 percent in August; This was 12.6% lower than August 2005;

• National median existing-home price for all housing types was $225,000 in August, down 1.7 percent from August 2005 when the median was $229,000. . .

• The drop in prices is the first year-on-year decline since 1995, and is the second-largest decline in the 30-year history of the survey;

• Total housing inventory levels rose 1.5 percent at the end of August to 3.92 million existing homes available for sale -- a 7.5-month supply at the current sales pace. This is the highest supply since April 1993;

• Sales have now declined for five months in a row and 9 of the past 12 months;

• Existing home sales weakness is similar to the New Home Sales report last week , which showed construction plunging by 6% in August; New Home Building activity has returned to leves seen in 2003.

As we noted last month, there are a variety of reasons Why Don't Big Housing Sales Drop Produce Big Price Drops. Suffice it to say, the data assmebly methods leave something to be desired.

I continue to be impressed with the disconnect between Housing and the Equity markets. Its pretty clear the bond markets get it, as have the commodity markets. Equity markets, on the other hand, are still contemplating some sort of a a soft landing / Goldilocks environment. Well, someone will be right and someone will be wrong . . .

The WSJ's Marketbeat noted a disconnect between "today's figures on sales of existing homes and other data from the National Association of Realtors":

"Richard Iley, senior U.S. economist at BNP Paribas, goes so far as to say today's figures are "suspiciously strong." He notes that the NAR's index of pending home sales is down 11% in 2006, while existing sales are down just 4%. The year-over-year rate of decline in existing-home sales is 12.5% through August, but the pending index, as of July, was down 16%. "Expect catch-up in the 'official' NAR resale numbers next month," Mr. Iley wrote.

The existing-home-sales report's headline number -- that sales had only fallen 0.5%, better than expected -- buoyed the stocks of homebuilders after it was released at 10 a.m. EDT. But those stocks fell sharply thereafter, as the underlying data still remain weak...

Mr. Iley also notes that the housing-price decline is likely to hurt consumer spending. Mortgage-equity withdrawals, which consumers have used in the past several years to finance spending, have declined. According to last week's Fed flow-of-funds data, mortgage-equity withdrawal sits at 1.5% of household disposable income, the lowest since the 2001 recession. Lower home prices won't help that, and prices could stay under pressure as more houses go unsold -- 7.5 months' worth of supply is on the market now, the most since April 1993. "As the rate of house-price inflation continues to fall and heads into negative territory, this wealth spigot is not only being turned off, but may move into reverse," he said."

Most astounding of all, the National Association of Realtors somehow spun the data as Bullish:

David Lereah, NAR’s chief economist, said home sales appear to be leveling out. “After a stronger-than-expected drop in July, the fairly even sales numbers in August tell us the market is at a more sustainable pace,” he said. “It keeps us on track to see the third highest sales year on record, but we do expect an adjustment in home prices to last several months as we work through a build up in the inventory of homes on the market.”

Kevin Depew pointed out the absurdity of this:

"Just ask the chief economist for the realtors group: 'The price correction is a welcome development,' he said, because it stops the bleeding. 'Sales have hit bottom,' he said. 'Sellers are finally getting it.' "

Given that Realtors routinely describe tiny apartments as "cozy," and manage to use the phrase "Handyman Special" to describe houses which you and I would call "shit-holes," perhaps we shouldn't be all that shocked by any spin from the group's chief economist . . .