The perennially optimistic David Lereah, chief economist of the National Association of Realtors, managed to put a happy face on an unhappy National Existing Home Sales Report:
Some of the rise in home sales may be from mild weather that brought out shoppers in December, but fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers.
Let’s take a look at some of these "improvements":
Total existing-home sales- including single-family, townhomes, condominiums and co-ops- rose 3.9% to a seasonally adjusted annual rate of 6.69 million units in February from a downwardly revised level of 6.44 million in January, but are 3.6% below the 6.94 million-unit pace in February 2006. Last month’s increase ws the biggest monthly rise in three years- sales also rose 3.9% in March 2004.
The NAR does use seasonally adjusted numbers, which are designed to reduce seasonal variability:
It is necessary to “annualize” and seasonally-adjust the existing home sales data so that month-to-month and quarter-to-quarter comparisons can be observed without seasonal variances distorting the overall picture. The annual rate for a particular month represents what the total number of sales for a year would be if the relative pace for that month were maintained for 12 consecutive months. Seasonal adjustments, which are determined by using the X-11 Variant created by the Census Bureau, are then used to factor out seasonal variances in resale activity. For example, home sales in the winter months are generally much slower than sales in the summer months, primarily because of differences in weather. These disparities tell us little about actual trends in the housing market because they are mostly a result of seasonal variances. Therefore, we need to remove seasonal variances and create an annualized rate to gain a greater perspective on how the resale market is performing. Seasonally-adjusted annualized figures are reported for both our monthly and quarterly reports.
However, year-over-year is the more important comparison and as usual, Lereah discounts the more important year-over-year figure. Last month’s 6.94 million units was the worst February for the past four years. Not since February 2003 when 6.19 million units were sold have the numbers been this low.
Median prices are also down:
The national median existing-home price for all housing types was $212,800 in February, down 1.3% from February 2006 when the median was $215,700.
Then there is that pesky inventory:
Total housing inventory levels rose 5.9% at the end of February to 3.75 million existing homes available for sale, which represents a 6.7 month supply at the current sales pace compared with a 6.6 month supply in January. Raw inventories peaked last July at 3.86 million, and supplies topped at 7.4 months in October.
Again, Lereah neglects to mention that YOY, this inventory number is 26% higher than last year’s figure of 2.86 million units. Inventory generally moderates in the winter, and 2006 was no exception. As expected, inventory is growing as we move into the spring selling season:
Lereah is wrong- the fundamentals in the housing market are deteriorating. Sales so far this year are running slightly above 2004 levels, but inventory is a whopping 61% higher since February 2004. As more sellers are competing for fewer buyers, this puts downward pressure on prices, as is evidenced by the median price appreciation chart.
The subprime meltdown is liable to add another challenge for the housing industry. The potential for tightening lending standards and reduced liquidity potentially will reduce the number of buyers in the market. Regardless of Lereah’s assertions, fundamentally, the market is in bad shape.
I just went to Google News and googled, “NAR” for latest stories.
How disappointing to see that at least some media outlets out there are still taking Lereah’s spin and double-speak at its word:
“US home sales rise in February”
US existing home sales rose by an encouraging 3.9 per cent last month, the National Association of Realtors (NAR) has said.
The strong figures for February come despite growing fears of a slowdown in the US property market.
Property experts believe that falling prices are enticing buyers back into the market.”
http://www.999today.com/propertyandrealestate/news/story/9501.html
What a positive, uplifting story.
I guess there are still people out there that believe whatever the big media tells them about real estate “must” be true. How sad.
Of course, you only need to know that Lereah was comparing month-over-month, and NOT year over year (as he has in the past), to see how lame his statements are.
MikeC-
Lereah even admits that events like weather can change the month-to-month. You can’t see a long term trend with a couple of data points.
What looks most significant to me is the rising inventory. After all, that’s the point isn’t it, to clear the inventory? If that is rising, you are falling further behind.
Whatever the sales number, until that inventory is eaten up, the market is going to be in a bad way.
Hi All,
It’s my first time posting here. But I do notice an improving trend in the YOY National Home Sales graph. Granted that all the sales are still less than last year, but the gap do seem to be closing ever since sept 06. So if inventory does not go above the high water mark set around sept 06, would this mean that the picture is actually improving nationally? Do anyone know what the trend is for Phoenix specifically?
PSLung-
Fair question-
It does look like a trough, doesn’t it? So far this year we look to be on track for 2003 level sales, and 2003 wasn’t considered a bad year. I expect sales to gradually increase, at least through the first half of this year. This chart doesn’t do a good job of ilustrating the problem though. I don’t in general like having sales and inventory on different graphs. The NAR however, does not thoughtfully provide us with historical data for inventory, and I haven’t dug into the records to mine it all out yet.
When you are determining rate, as I’m sure you know, you need the term "per" somewhere. "Miles per hour," or "miles per gallon," for example. What this chart does is shows sales without context. For example:
Let’s say I’m the CEO of "DoomMart," which in 2003 had 10 stores. Sales really started taking off, so I added seven stores to handle all of the traffic, then sales go back to 2003 levels.
It’s easy to see the problem here. The sales that looked great in 2003, aren’t looking so great any more. Sales per store are now way down.
Yes the example breaks down on several levels, but here’s the point.
The NAR only lists reports back to 2004 on their site, [that's why I listed 2004 inventory] but based on articles from around that time in 2003, 2.2 million units in inventory is a fairly close guess. That means that nationally inventory is up around 70% from 2003. Sellers have a lot more competition, and are going to have to be a lot more aggressive [read that lower prices] to work through this inventory. Note the inventory rose MOM in spite of increased sales. What will indicate improvement is when we see a good solid trend [read that more than 2 data points!] of inventory reduction. Without that, sales numbers wherever they are at don’t impress me.
Phoenix by the way, is the same, only worse. Here’s last month’s Phoenix report.
There is no question in my mind, that we are still on the bad side of the curve. The number of units sold is an interesting statistic, but not nearly as insightful as the median price data coupled with the units sold and inventory. Twist - good charts! The FED has consistently talked inflation, inflation, inflation and so interest rates moved up, up, up. I am sure when the FED saw the housing numbers along with the admission by the FED that they should have done more to limit the impact on sub prime lending, as key reasons why the prime rate stayed put. If the FED thought that we were on the rebound, prime would have moved up 1/4 point. We will be on the good side of the curve when the charts show positive growth on all fronts, not just the units sold.
- The Open House Network - ROpenHouse
The median price appreciation curve is even worse than it looks.
Consider that just to stay PAR with inflation, every property must be currently appreciating at abou 3% per year.
That means that if the current median price appreciation is -2%, you are really down 5% on your property.
If you are a family living in the home, chances are better you can ride that out - and I hope you do.
If you are a flipper, or only an investor, read the writing on the wall, figure in the property taxes, repairs, and real estates commissions, and realize that you are losing money big-time. Time to GET OUT!
MikeC-
People also need to remember that a “national average” is so homogenized, it doesn’t apply to anyone. (Kind of like the one-size fits all clothing)
You’ve got to pay attention to what things are SELLING FOR (different than listing price) wherever you are.
National charts are all fine and dandy, but they won’t help you price your property right for your market.